Chapter 4: The Market Forces of Supply and Demand

Vocabulary flashcards covering core terminology, laws, and determinants of supply and demand from Mankiw's Principles of Macroeconomics (10th Edition) Chapter 4.

Market

A group of buyers and sellers of a particular good or service, where buyers determine demand and sellers determine supply.

Competitive market

A market in which there are many buyers and many sellers, so that each has a negligible impact on market price.

Perfectly competitive market

A market where goods offered for sale are all the same, buyers and sellers are numerous, and at the market price buyers can buy all they want and sellers can sell all they want.

Monopoly

A market with only one seller who sets the price.

Quantity demanded

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

Law of demand

The claim that, other things being equal, when the price of a good rises, the quantity demanded falls, and when the price falls, the quantity demanded 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 the individual demands for a particular good or service, found by adding individual demand curves horizontally.

Change in quantity demanded

A movement along a fixed demand curve caused by a change in the price of the good itself.

Change in demand

An increase or decrease in the quantity demanded at each possible price, represented graphically as a shift of the demand curve.

Normal good

A good for which, other things equal, an increase in income leads to an increase in demand.

Inferior good

A good for which, other things equal, an increase in income leads to a decrease in demand.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Non-price determinants of demand

Variables that shift the demand curve, including income, prices of related goods, tastes, expectations, and the number of buyers.

Quantity supplied

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

Law of supply

The claim that, other things being equal, when the price of a good rises, the quantity supplied also rises, and when the price falls, the quantity supplied falls.

Supply schedule

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

Supply curve

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

Market supply

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

Non-price determinants of supply

Variables that shift the supply curve, including input prices, technology, expectations, and the number of sellers.

Equilibrium

A situation in which the quantity of a good that buyers are willing and able to buy exactly balances the quantity that sellers are willing and able to sell.

Equilibrium price

The price that balances quantity supplied and quantity demanded.

Equilibrium quantity

The quantity supplied and the quantity demanded at the equilibrium price.

Surplus

A situation in which quantity supplied is greater than quantity demanded, also known as excess supply.

Shortage

A situation in which quantity demanded is greater than quantity supplied, also known as excess demand.

Law of supply and demand

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

Three steps for analyzing changes in equilibrium

A process consisting of: (1) Decide if the event shifts the supply or demand curve (or both); (2) Decide in which direction the curve shifts; (3) Use a supply-and-demand diagram to see how the shift changes the equilibrium price and quantity.