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