The Market Forces of Supply and Demand

Flashcards reviewing the concepts of supply and demand, market equilibrium, and factors influencing these economic forces.

Supply and Demand

The two forces that make market economies work.

Market

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

Competitive Market

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

Perfect Competition

Market with the following conditions: Products are the same; Numerous buyers and sellers with no influence over price; Buyers and sellers are price takers.

Monopoly

Market with one seller who controls price.

Oligopoly

Market with few sellers.

Monopolistic Competition

Market with many sellers and slightly differentiated products, where each seller may set the price for its own product.

Quantity Demanded

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

Law of Demand

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

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.

Market Demand

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

Change in Quantity Demanded

Movement along the demand curve caused by a change in the price of the product.

Change in Demand

A shift in the demand curve, either to the left or right, caused by any change that alters the quantity demanded at every price.

Normal Good

A good for which the demand increases as income increases.

Inferior Good

A good for which the demand decreases as income increases.

Substitutes

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

Complements

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

Quantity Supplied

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

Law of Supply

States that, other things equal, the quantity supplied of a good rises when the price of the good rises.

Supply Schedule

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

Supply Curve

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

Market Supply

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

Change in Quantity Supplied

Movement along the supply curve caused by a change in anything that alters the quantity supplied at each price.

Change in Supply

A shift in the supply curve, either to the left or right, caused by a change in a determinant other than price.

Equilibrium

A situation in which the price has reached the level where quantity supplied equals quantity demanded.

Equilibrium Price

The price that balances quantity supplied and quantity demanded; the price at which the supply and demand curves intersect.

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price; the quantity at which the supply and demand curves intersect.

Surplus

When price > equilibrium price, then quantity supplied > quantity demanded, leading to excess supply.

Shortage

When price < equilibrium price, then quantity demanded > the quantity supplied, leading to excess demand.

Law of Supply and Demand

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