Chapter 3 - Demand, Supply, and Market Equilibrium

Flashcards covering key concepts from the Demand, Supply, and Market Equilibrium chapter.

What characterizes a market?

A market is characterized by the interaction between buyers and sellers, which can take place locally, nationally, or internationally.

What is a demand schedule?

A demand schedule is a table showing the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices over a specified time.

What does the law of demand state?

The law of demand states that, all else being equal, as the price decreases, the quantity demanded increases, and as the price increases, the quantity demanded decreases.

What is a demand curve?

A demand curve is a graph showing the relationship between the price of a product and the quantity demanded.

What are the determinants of demand?

The determinants of demand include changes in consumer tastes and preferences, the number of buyers, income, prices of related goods, and consumer expectations.

What does a shift in the demand curve indicate?

A shift in the demand curve indicates a change in demand due to factors other than price, such as changes in consumer preferences or income.

What is the law of supply?

The law of supply states that, all else being equal, as the price increases, the quantity supplied also increases, and as the price decreases, the quantity supplied decreases.

What are the determinants of supply?

The determinants of supply are changes in factor prices, technology, taxes and subsidies, prices of other goods, producer expectations, and the number of sellers.

What is market equilibrium?

Market equilibrium occurs where the demand curve and supply curve intersect, determining the equilibrium price and quantity.

What happens when there is a surplus in the market?

A surplus occurs when the quantity supplied exceeds the quantity demanded at a given price, leading to downward pressure on prices.

What causes a shortage in the market?

A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price, leading to upward pressure on prices.

What is the rationing function of prices?

The rationing function of prices refers to the ability of supply and demand forces to establish a price at which selling and buying decisions align, clearing the market.

What is a price ceiling?

A price ceiling is a maximum legal price that can be charged for a product, often resulting in a shortage if set below equilibrium price.

What is a price floor?

A price floor is a minimum price set by the government for a product, often resulting in a surplus if set above equilibrium price.