Chapter 4: The Market Forces of Supply and Demand

Flashcards covering key vocabulary from the 'Chapter 4: The Market Forces of Supply and Demand' lecture notes, including definitions of market structures, demand and supply concepts, and market equilibrium.

Market

A group of buyers and sellers of a particular good or service.

Competitive Market

A market in which there are many buyers and many sellers, each having a negligible impact on market price.

Perfectly Competitive Market

A market characterized by identical goods, numerous buyers and sellers, and no single participant having influence over the market price, making them price takers.

Monopoly

A market structure where there is only one seller, who subsequently sets the price.

Law of Demand

Other things being equal, when the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded rises.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded.

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded.

Individual Demand

An individual's demand for a particular product.

Market Demand

The sum of all the individual demands for a particular good or service.

Normal Good

A good for which an increase in income leads to an increase in demand.

Inferior Good

A good for which an increase in income leads to a decrease in demand.

Substitutes

Pairs of goods that are used in place of each other, where an increase in the price of one leads to an increase in the demand for the other.

Complements

Pairs of goods that are used together, where an increase in the price of one leads to a decrease in the demand for the demand for the other.

Shift in the Demand Curve

A change in quantity demanded at any given price, caused by variables other than the price of the good itself (e.g., income, tastes, expectations, prices of related goods, number of buyers).

Movement along the Demand Curve

A change in the quantity demanded of a good due solely to a change in the good's own price.

Law of Supply

Other things being equal, when the price of a good rises, the quantity supplied also rises, and when the price falls, the quantity supplied falls as well.

Quantity Supplied

The amount of a good that sellers are willing and able to sell.

Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied.

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied.

Individual Supply

A single seller's supply for a product.

Market Supply

The sum of the supplies of all sellers for a particular good or service.

Shift in the Supply Curve

A change in quantity supplied at any given price, caused by variables other than the price of the good itself (e.g., input prices, technology, expectations, number of sellers).

Movement along the Supply Curve

A change in the quantity supplied of a good due solely to a change in the good's own price.

Equilibrium

A state where the quantity of a good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell.

Equilibrium Price

The price at which the quantity supplied and quantity demanded are equal.

Equilibrium Quantity

The quantity supplied and quantity demanded at the equilibrium price.

Surplus

A situation where quantity supplied is greater than quantity demanded, leading to downward pressure on prices.

Shortage

A situation where quantity demanded is greater than quantity supplied, leading to upward pressure on prices.

Law of Supply and Demand

The principle that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance.

Role of Prices in Market Economies

Prices act as signals that guide economic decisions and allocate scarce resources, ensuring supply and demand are balanced for every good.