ECON1000 Chapter 2 Glossary

What is a free market?

A market characterized by the absence of government intervention, where individual producers and consumers freely make their own economic decisions.

What is the law of demand?

The principle that the quantity of a good demanded will fall as the price rises and rise as the price falls, assuming other factors remain constant (ceteris paribus).

What is the income effect?

The change in quantity demanded resulting from a change in price that affects the consumer's purchasing power.

What is the substitution effect?

The change in quantity demanded arising from consumers switching to or from alternative products when prices change.

What is quantity demanded?

The amount of a good that a consumer is willing and able to buy at a specific price over a certain period of time.

What is a demand schedule for an individual?

A table outlining various quantities of a good that an individual is willing and able to buy at different prices during a specific time.

What is a market demand schedule?

A table that shows the total quantities of a good that all consumers combined are willing and able to buy at various prices.

What does a demand curve represent?

A graph illustrating the relationship between the price of a good and the quantity demanded over a specific period.

What are substitute goods?

Goods considered alternatives to each other; when the price of one rises, the demand for the other tends to increase.

What are complementary goods?

Goods that are consumed together; an increase in the price of one leads to a decrease in the demand for both.

What are normal goods?

Goods whose demand increases as consumer incomes rise, associated with a positive income elasticity of demand.

What are inferior goods?

Goods whose demand decreases as consumer incomes rise, leading to a negative income elasticity of demand.

What is a change in demand?

A shift in the demand curve resulting from a change in any determinant of demand other than price.

What is a change in the quantity demanded?

A movement along the demand curve to a new point due to a change in price.

What is a supply schedule?

A table showing the various quantities of a good that producers are willing and able to supply at different prices.

What is a supply curve?

A graph that depicts the relationship between the price of a good and the quantity supplied over a given period.

What are substitutes in supply?

Goods where an increase in the production of one requires diverting resources from the production of the other.

What are goods in joint supply?

Goods where an increase in the production of one results in an increase in the production of the other.

What is a change in the quantity supplied?

A movement along the supply curve to a new point due to a change in price.

What is a change in supply?

A shift in the supply curve due to changes in determinants other than price.

What is market clearing?

A condition where supply equals demand, resulting in no shortage or surplus and the market is in equilibrium.

What is price elasticity of demand?

A measure of how responsive the quantity demanded is to a change in price.

What is elastic demand?

When demand is elastic, a change in price results in a proportionately larger change in quantity demanded, typically having a value greater than 1.

What is inelastic demand?

When demand is inelastic, a change in price leads to a proportionately smaller change in quantity demanded, with a value less than 1.

What is unit elasticity?

A situation where the price elasticity of demand equals 1, indicating that quantity demanded changes by the same proportion as price.

What is total consumer expenditure (TE)?

The total spending by consumers, calculated as price multiplied by quantity purchased: TE = P * Q.

What is total revenue (TR)?

The total amount received by firms from sales, calculated as price multiplied by the quantity sold: TR = P * Q.

What is income elasticity of demand?

The responsiveness of demand to a change in consumer incomes, measured as the proportionate change in demand divided by the proportionate change in income.

What is cross-price elasticity of demand?

The responsiveness of the demand for one good to changes in the price of another good.

What is price elasticity of supply?

The responsiveness of quantity supplied to a change in price, measured as the proportionate change in quantity supplied divided by the proportionate change in price.

What is speculation?

The act of making buying or selling decisions based on expectations of future price changes.

What is self-fulfilling speculation?

When the actions of speculators cause the very effects they anticipated, reinforcing their expectations.

What is destabilizing speculation?

When speculators’ actions exacerbate price changes by causing supply and/or demand curves to shift further in the same direction.

What is stabilizing speculation?

When speculators’ actions cause shifts in demand and/or supply curves in the opposite direction of recent changes, leading to price corrections.

What is a minimum price?

A price floor established by the government or an agency, preventing prices from falling below a specified level.

What is a maximum price?

A price ceiling imposed by the government or an agency, preventing prices from exceeding a specified level.