Ch. 3 Vocab

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