Chapter 4: The Market Forces of Supply and Demand

Vocabulary flashcards covering the core concepts, definitions, and market mechanisms introduced in Chapter 4: The Market Forces of Supply and Demand.

Market

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

Perfectly Competitive Market

A market where the goods offered for sale are all exactly the same, and the buyers and sellers are so numerous that no single buyer or seller has any influence over market price.

Price Takers

Buyers and sellers in a perfectly competitive market who must accept the market price because no single individual has any influence over it.

Quantity Demanded

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

Law of Demand

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

Demand Schedule

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

Market Demand

The sum of all individual demands for a particular good or service, found by adding individual quantities demanded at each price.

Normal Good

A good for which an increase in income leads to an increase in quantity demanded at every given price, shifting the demand curve to the right.

Inferior Good

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

Substitutes

Two goods for which a fall in the price of one good reduces the demand for the other good.

Complements

Two goods for which a fall in the price of one good increases the demand for the other good.

Change in Quantity Demanded

A movement along a fixed demand curve that occurs when the price of the good itself changes.

Change in Demand

A shift in the demand curve that occurs when a determinant of demand other than the price of the good itself changes.

Quantity Supplied

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

Law of Supply

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

Supply Schedule

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

Market Supply

The sum of the supplies of all sellers of a good or service, found by adding the individual quantities supplied at each price.

Equilibrium

The point at which the supply and demand curves intersect.

Equilibrium Price

The price at the point where the supply and demand curves intersect.

Equilibrium Quantity

The quantity at the point where the supply and demand curves intersect.

Surplus (Excess Supply)

A situation that occurs when quantity supplied is greater than quantity demanded, leading sellers to cut prices until equilibrium is reached.

Shortage (Excess Demand)

A situation that occurs when quantity demanded is greater than quantity supplied, leading sellers to raise prices until equilibrium is reached.