Principles of Macroeconomics: The Market Forces of Supply and Demand

These flashcards cover key vocabulary and concepts related to the market forces of supply and demand, as introduced in the macroeconomics lecture.

Market

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

Competitive Market

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

Law of Demand

Other things being equal, when the price of a good rises, the quantity demanded falls and when the price falls, the quantity demanded rises.

Quantity Demanded

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

Demand Curve

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

Normal Good

A good for which an increase in income leads to an increase in demand.

Inferior Good

A good for which an increase in income leads to a decrease in demand.

Substitutes

Goods that can be used in place of each other; an increase in the price of one leads to an increase in the demand for the other.

Complements

Goods that are used together; an increase in the price of one leads to a decrease in the demand for the other.

Law of Supply

Other things being equal, when the price of a good rises, the quantity supplied also rises.

Quantity Supplied

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

Supply Curve

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

Equilibrium

The point at which quantity supplied equals quantity demanded.

Surplus

Occurs when quantity supplied is greater than quantity demanded.

Shortage

Occurs when quantity demanded is greater than quantity supplied.

Law of Supply and Demand

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

Market Demand Curve

Shows how the total quantity demanded of a good varies as its price changes, holding other factors constant.

Market Supply Curve

Shows how the total quantity supplied varies as the price varies, holding constant all other factors.

Shifts in Demand Curve

Changes that increase or decrease the quantity buyers want to purchase at any price.

Shifts in Supply Curve

Changes that increase or decrease the quantity sellers want to sell at any price.

Price Gouging

Charging higher prices for essential goods during a crisis, often considered unethical or illegal.