Chapter 3 - Supply and Demand

Key terms as shown in the book and emphasized concepts.

factor market

Any place where factors of production (e.g., land, labor, capital) are bought and sold.

product market

Any place where finished goods and services (products) are bought and sold.

opportunity cost

The most desired goods or services that are forgone in order to obtain something else.

supply

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus.

demand

The willingness and ability to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus.

demand schedule

A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

demand curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

law of demand

The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus

substitute goods

Goods that substitute for each other; when the price of good x rises, the demand for good y increases, ceteris paribus.

complementary goods

Goods frequently consumed in combination; when the price of good x rises, the demand for good y falls, ceteris paribus.

ceteris paribus

The assumption of nothing else changing.

shift in demand

A change in the quantity demanded at any (every) price.

market demand

The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands.

market supply

The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus.

law of supply

The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus.

equilibrium price

The price at which the quantity of a good demanded in a given time period equals the quantity supplied.

market mechanism

price floor

Lower limit set for the price of a good; minimum price

market surplus

The amount by which the quantity supplied exceeds the quantity demanded at a given price; excess supply.

market shortage

The amount by which the quantity demanded exceeds the quantity supplied at a given price; excess demand.

price ceiling

An upper limit imposed on the price of a good; maximum price

market

refers to a place or situation where a transaction/exchange takes place — where a buyer and seller interact.