chapter 4) Principles of Microeconomics: Supply, Demand, and Market Equilibrium

Vocabulary practice flashcards covering fundamental concepts of market supply and demand, competitive markets, curve shifts, and market equilibrium.

Market

A group of buyers and sellers of a particular product.

Competitive Market

A market with many buyers and sellers, where each individual participant has a negligible effect on price.

Perfectly Competitive Market

A market where all goods are exactly the same, and buyers and sellers are so numerous that no individual can affect the market price, making each a "price taker."

Quantity Demanded

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

Law of Demand

The claim that the quantity demanded of a good falls when the price of the good rises, other things being equal.

Demand Schedule

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

Market Demand

The sum of the quantities demanded by all buyers in the market at each price.

Normal Good

A good for which demand is positively related to income, meaning an increase in income leads to an increase in quantity demanded at each price and shifts the demand curve to the right.

Inferior Good

A good for which demand is negatively related to income, meaning an increase in income shifts the demand curve for the good to the left.

Substitutes

Two goods for which an increase in the price of one causes an increase in the demand for the other (shifting its demand curve to the right).

Complements

Two goods for which an increase in the price of one causes a fall in the demand for the other (shifting its demand curve to the left).

Quantity Supplied

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

Law of Supply

The claim that the quantity supplied of a good rises when the price of the good rises, other things being equal.

Supply Schedule

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

Market Supply

The sum of the quantities supplied by all sellers in the market at each price level.

Change in Demand

A shift of the demand curve occurring when a non-price determinant of demand (such as income, tastes, expectations, prices of related goods, or number of buyers) changes.

Change in the Quantity Demanded

A movement along a fixed demand curve caused exclusively by a change in the price ($P$) of the good.

Change in Supply

A shift of the supply curve occurring when a non-price determinant of supply (such as input prices, technology, expectations, or number of sellers) changes.

Change in the Quantity Supplied

A movement along a fixed supply curve caused exclusively by a change in the price ($P$) of the good.

Equilibrium

The market state where the price ($P$) has reached the level where quantity supplied equals quantity demanded ($Q^s = Q^d$).

Equilibrium Price

The price that equates quantity supplied with quantity demanded.

Equilibrium Quantity

The specific quantity supplied and quantity demanded at the equilibrium price.

Surplus (Excess Supply)

A market situation where quantity supplied is greater than quantity demanded ($Q^s > Q^d$), prompting sellers to cut prices until equilibrium is restored.

Shortage (Excess Demand)

A market situation where quantity demanded is greater than quantity supplied ($Q^d > Q^s$), prompting sellers to raise prices until equilibrium is restored.