Markets - Chapter 3 vocab

**market economy**

an economy in which private individuals, rather than a centralized planning authority, make the decisions

**market**

buyers and sellers who trade a particular good or service

**competitive market**

a market in which fully informed, price-taking buyers and sellers easily trade a standardized good or service

**standardized good**

a good for which any two units have the same features and are interchangeable

**transaction costs**

the costs incurred by buyer and seller in agreeing to and executing a sale of goods or services

**price takers**

buyers or sellers who cannot affect the market price

**quantity demanded**

the amount of a particular good that buyers will purchase at a given price during a specified period

**law of demand**

a fundamental characteristic of demand: all else equal, quantity demanded rises as price falls

**demand schedule**

a table that shows the quantities of a particular good or service that consumers will purchase (demand) at various prices

**substitutes**

goods that serve a similar-enough purpose that a consumer might purchase one in place of the other

**complements**

goods that are consumed together, so that purchasing one will make consumers more likely to purchase the other

**normal goods**

goods for which demand increases as income increases

**inferior goods**

goods for which demand decreases as income increases

**quantity supplied**

the amount of a particular good or service that producers will offer for sale at a given price during a specified period

**law of supply**

a fundamental characteristic of supply: all else equal, quantity supplied rises as price rises

**supply schedule**

a table that shows the quantities of a particular good or service that producers will supply at various prices

**supply curve**

a graph that shows the quantities of a particular good or service that producers will supply at various prices

**equilibrium**

the situation in a market when the quantity supplied equals the quantity demanded; graphically, this convergence happens where the demand curve intersects the supply curve

**equilibrium price**

the price at which the quantity supplied equals the quantity demanded

**equilibrium quantity**

the quantity that is supplied and demanded at the equilibrium price

**surplus**

a way of measuring who benefits from transactions and by how much

**excess quantity supplied**

a situation in which the quantity of a good that is supplied is higher than the quantity demanded

**shortage**

a situation in which the quantity of a good that is demanded is higher than the quantity supplied

**excess quantity demand**

a situation in which the quantity of a good that is demanded is higher than the quantity supplied