Ch 3: Supply and Demand

20 vocabulary flashcards covering fundamental terms and concepts from Chapter 3: Demand and Supply.

Demand

A schedule showing the quantity of a good or service consumers are willing and able to purchase at various prices during a specified period, other things being equal.

Law of Demand

The inverse relationship between price and quantity demanded: as price rises, quantity demanded falls, and vice versa, ceteris paribus.

Ceteris Paribus

A Latin phrase meaning “other things equal,” used to isolate the effect of one variable by holding all other relevant factors constant.

Relative Price

The price of one commodity expressed in terms of another commodity; a ratio that reflects opportunity cost.

Money Price

The absolute or nominal price of a good measured in current dollars.

Demand Schedule

A table that lists the quantities of a good consumers will buy at different prices during a given time period.

Demand Curve

A downward-sloping graph that plots the demand schedule, illustrating the inverse relationship between price and quantity demanded.

Market Demand

The total demand of all consumers for a good or service, found by horizontally summing individual demand curves at each price.

Normal Goods

Goods for which demand increases when consumer income rises.

Inferior Goods

Goods for which demand decreases when consumer income rises.

Substitutes

Two goods for which a price increase in one leads to an increase in demand for the other.

Complements

Two goods for which a price increase in one leads to a decrease in demand for the other.

Supply

A schedule showing the quantity of a good sellers are willing to offer at various prices during a specified period, other things being equal.

Law of Supply

The direct relationship between price and quantity supplied: as price rises, quantity supplied rises, and vice versa, ceteris paribus.

Supply Schedule

A table that lists the quantities of a good producers will supply at different prices during a given time period.

Supply Curve

An upward-sloping graph that plots the supply schedule, illustrating the direct relationship between price and quantity supplied.

Determinants of Supply

Factors—such as technology, input costs, price expectations, taxes and subsidies, and number of firms—that shift the entire supply curve.

Equilibrium Price

The market-clearing price at which quantity demanded equals quantity supplied; the intersection of demand and supply curves.

Shortage

A condition in which quantity demanded exceeds quantity supplied at a given price; occurs at prices below equilibrium.

Surplus

A condition in which quantity supplied exceeds quantity demanded at a given price; occurs at prices above equilibrium.