Principles of Economics (Mankiw): Chapter 4

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 so that each has a negligible impact on the market price

Quantity Demanded

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

Law of Demand

The claim that, other things equal, the quantity demanded of a good falls when the price of the good 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

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

Quantity Supplied

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

Law of Supply

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

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

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

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

Shortage

A situation in which 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 the quantity demanded for that good into balance

Law of Diminishing Marginal Utility

The marginal utility of a good gets smaller as one consumes more of that good, ceteris paribus.

Substitution Effect

If a good becomes relatively more expensive than its substitutes, consumers will buy less of it.

Income Effect

If the price of a good decreases, ceteris paribus, then one can afford to buy more of all goods.

Law of Diminishing Marginal Product

The marginal product of an input gets smaller as one uses more of that input, ceteris paribus.

Utility

The usefulness of a product

Utility

The benefit gained from consuming a product

Utility

The satisfaction received when consuming a product

Utility

The happiness achieved by consuming

Util

A measurement of utility

Marginal Cost

Marginal benefit must equal or be greater than