Studied by 5 people
market economy
resources are allocated among households and firms with little or no government interference
invisible hand
A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all; refers to unobservable market forces that guide resources to their highest-valued use
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price and output
imperfect markets
a market in which either the buyer or the seller has an influence on the market price
market power
a firm's ability to influence the price of a good or service by exercising control over its demand, supply, or both
monopoly
exists when a single company supplies the entire market for a particular good or service
quantity demanded
the amount of a good that buyers are willing and able to purchase at the current price
law of demand
all other things being equal, quantity demanded falls when the prices rise and rises when the prices fall
demand schedule
a table that shows the relationship between the price of a product and the quantity of the product demanded
demand curve
a curve that shows the relationship between the price of a product and the quantity of the product demanded
market demand
the sum of all the individual quantities demanded by each buyer in the market at each price
purchasing power
the value of your income expressed in terms of how much you can afford
normal good
consumers buy more of normal good as income rises, holding all other factors constant
inferior good
one where the quantity demanded decreases in response to an increase in consumer incomes
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
subsidy
a payment made by the government to encourage the consumption or production of a good or service
quantity supplied
the amount of a good or service that a firm is willing and able to supply at a given price
law of supply
all other things being equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price of the good falls
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply curve
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
market supply
the sum of the quantities supplied by each seller in the market at each price
inputs
resources used in the production process
equilibrium
occurs at the point where the demand curve and the supply curve intersect
equilibrium price
the price at which the quantity supplied equals the quantity demanded; market-clearing price
equilibrium quantity
the amount at which the quantity supplied is equal to the quantity demanded
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
shortage
A situation in which quantity demanded is greater than quantity supplied; excess demand
surplus
A situation in which quantity supplied is greater than quantity demanded; excess supply
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