Chapter 3 Economics: Supply and Demand Study Guide

Vocabulary flashcards for Chapter 3: Supply and Demand from Paul Krugman and Robin Wells' Microeconomics textbook.

Competitive Market

A market in which there are many buyers and sellers of the same good or service, none of whom can influence the market price.

Supply and Demand Model

A model of how a competitive market works, consisting of five key elements: the demand curve, supply curve, market equilibrium, shifts of the demand and supply curves, and changes in market equilibrium.

Demand Schedule

A table showing how much of a good or service consumers will want to buy at different prices.

Demand Curve

The graphical representation of the demand schedule, showing how much of a good or service consumers want to buy at any given price.

Law of Demand

The principle stating that, other things equal, as price rises, the quantity demanded falls.

Shift of the Demand Curve

A change in the quantity demanded of a good or service at any given price, represented by the change of the original demand curve to a new position.

Movement Along the Demand Curve

A change in the quantity demanded of a good that is the result of a change in that good's price.

Substitutes

Two goods for which a fall in the price of one of the goods makes consumers less willing to buy the other good.

Complements

Two goods for which a fall in the price of one good makes people more willing to buy the other good.

Normal Good

A good for which a rise in income increases the demand for that good.

Inferior Good

A good for which a rise in income decreases the demand for that good.

Market Demand Curve

The horizontal sum of the individual demand curves of all consumers in a given market.

Supply Schedule

A table showing how much of a good or service would be supplied at different prices.

Supply Curve

A graphical representation showing how much of a good or service people are willing to sell at any given price.

Shift of the Supply Curve

A change in the quantity supplied of a good or service at any given price.

Movement Along the Supply Curve

A change in the quantity supplied of a good that is the result of a change in that good's price.

Input

A good that is used to produce another good.

Market Supply Curve

The horizontal sum of the individual supply curves of all producers in a given market.

Market Equilibrium

A situation in a competitive market when the quantity demanded of a good equals the quantity supplied of that good.

Equilibrium Price

Also known as the market-clearing price, it is the price at which the quantity demanded equals the quantity supplied.

Equilibrium Quantity

The quantity of a good bought and sold at the equilibrium price.

Surplus

A situation in which the quantity supplied of a good exceeds the quantity demanded, occurring when the price is above its equilibrium level.

Shortage

A situation in which the quantity demanded of a good exceeds the quantity supplied, occurring when the price is below its equilibrium level.

Congestion Pricing

A strategy aimed at reducing traffic congestion by imposing a charge on vehicles entering a city center during business hours.