Chap 3: The market forces of supply and demand

Substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

Complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

normal good

a good for which, other things equal, an increase in income leads to an increase in demand

Inferior Goods

a good that consumers demand less of when their incomes increase

quantity supplied

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

Law of Supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

market

a group of buyers and sellers of a particular good or service

competitive market

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price

Quantity Demanded

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

Law of Demand

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

Demand Curve

a graph of the relationship between the price of a good and the quantity demanded

Supply Curve

a graph of the relationship between the price of a good and the quantity supplied

Equilibrium

A state of balance

equilibrium quantity

the quantity bought and sold at the equilibrium price

surplus

extra

shortage

A situation in which quantity demanded is greater than quantity supplied

comparative statics

comparision of one initial static equilibrium with another

law of supply and demand

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

Elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

income elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

cross-price elasticity of demand

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price

Total Revenue

the total amount of money a firm receives by selling goods or services

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