Chapter 4 flashcards

Market

A place where buyers and sellers interact; a group of buyers and sellers of a good or service.

Market Economy

An economic system where resources are allocated among households and firms with little or no government interference, guided by self-interest and the invisible hand of the market.

Competitive Markets

Markets characterized by many buyers and many sellers, where the goods sold by each vendor are similar, and no single individual has influence over the price.

Imperfect Markets

Markets where a single buyer or seller has the ability to influence the price of a good or service.

Market Power

A firm's ability to influence the market price of a good or service.

Monopoly

A market structure where a single company supplies the entire market for a good or service.

Demand

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

Law of Demand

States that, other things equal, when the price of a good rises, the quantity demanded for the good falls, and when the price falls, the quantity demanded rises.

Demand Curve

A graph that shows how price affects quantity demanded, assuming all non-price determinants of demand remain constant.

Demand Curve Shifters

Non-price determinants that cause the entire demand curve to shift, including the number of buyers, income, prices of related goods (substitutes and complements), tastes, and expectations about the future.

Normal Good

A good for which an increase in income leads to an increase in demand (shifts the Demand curve to the right).

Inferior Good

A good for which an increase in income leads to a decrease in demand (shifts the Demand curve to the left).

Substitutes

Two goods are substitutes if an increase in the price of one leads to an increase in the demand for the other.

Complements

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

Change in Demand

A shift of the entire demand curve to a different position, caused by a change in a non-price determinant.

Change in Quantity Demanded

A movement along the same demand curve, caused only by a change in the price of the good.

Supply

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

Law of Supply

States that, other things equal, when the price of a good rises, the quantity of the supplied good rises, and when the price falls, the quantity of the supplied good falls.

Supply Curve Shifters

Non-price determinants that cause the entire supply curve to shift, including input prices, technology, the number of sellers, and expectations about the future.

Surplus

A situation where the quantity supplied is greater than the quantity demanded, also known as excess supply.

Shortage

A situation where the quantity demanded is greater than the quantity supplied, also known as excess demand.