Principles of Macroeconomics - Chapter 3: Demand and Supply Flashcards

Vocabulary flashcards covering core macroeconomics concepts including demand, supply, relative price, elasticities, determinants, and market equilibrium.

Competitive Market

A market with many buyers and many sellers for the exact same item, where no single buyer or seller can affect the price.

Money Price

The price of a good measured in terms of monetary currency, such as dollars, pesos, or euros.

Relative Price

The price of a good measured in terms of a quantity of other goods, which represents its opportunity cost.

Relative Price Formula

The formula defined as $\text{Relative Price of Good A in terms of Good B} = \frac{\text{Money Price of Good A}}{\text{Money Price of Good B}}$.

Quantity Demanded

The total amount of a good or service that consumers plan to buy during a given time period at a particular price, represented as $Q_D$.

Law of Demand

The principle stating that when the price of a good rises, its quantity demanded decreases, and when the price falls, its quantity demanded increases, assuming all other factors remain equal (ceteris paribus).

Substitution Effect

The economic phenomenon where an increase in a good's price makes it relatively more attractive for consumers to buy alternative goods instead.

Income Effect

The economic phenomenon where an increase in a good's price reduces consumers' overall purchasing power, causing them to buy less overall.

Demand Schedule

A tabular representation that lists the quantity demanded corresponding to each specific price level for a good.

Demand Curve

A graphical representation showing the relationship between the price of a good on the vertical axis and the quantity demanded on the horizontal axis.

Change in Quantity Demanded

A movement along a fixed demand curve caused solely by a change in the price of the good itself.

Change in Demand

A shift of the entire demand curve caused by a change in any non-price factor affecting consumer behavior.

Substitute

A good that can be used in place of another good, where an increase in the price of one causes an increase in the demand for the other.

Complement

A good that is consumed together with another good, where an increase in the price of one causes a decrease in the demand for the other.

Normal Good

A good for which demand increases when consumer income rises, and demand decreases when consumer income falls.

Inferior Good

A good for which demand decreases when consumer income rises, and demand increases when consumer income falls.

Quantity Supplied

The total amount of a good or service that producers plan to sell during a given time period at a specified price, represented as $Q_S$.

Law of Supply

The principle stating that when the price of a good rises, its quantity supplied increases, and when its price falls, its quantity supplied decreases, holding all else constant.

Supply Schedule

A table that shows the quantity supplied of a good at various price levels.

Supply Curve

A graph displaying the relationship between the price of a good on the vertical axis and the quantity supplied on the horizontal axis.

Change in Quantity Supplied

A movement along a fixed supply curve caused solely by a change in the price of the good itself.

Change in Supply

A shift of the entire supply curve caused by a change in any factor other than the price of the good itself.

Substitutes in Production

Goods that can be produced using the same resources, where an increase in the price of one good leads to a decrease in the supply of the other.

Complements in Production

Goods that must be produced together, where an increase in the price of one good leads to an increase in the supply of the other.

Equilibrium Price

The market price at which quantity supplied equals quantity demanded ($Q_S = Q_D$).

Equilibrium Quantity

The amount of a good bought and sold at the equilibrium price, where $Q_S = Q_D$.

Shortage

A market condition occurring when quantity demanded exceeds quantity supplied ($Q_D > Q_S$) because the current price is below the equilibrium price.

Surplus

A market condition occurring when quantity supplied exceeds quantity demanded ($Q_S > Q_D$) because the current price is above the equilibrium price.