AP Microeconomics Chapter 4 Key Terms

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Chapter 4 Individual Markets: Demand and Supply

Last updated 6:37 AM on 9/15/26
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43 Terms

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market

Markets bring together buyers (“demanders”) and sellers (“suppliers”).

  • trade

  • labor


<p>Markets bring together buyers (“demanders”) and sellers (“suppliers”).</p><ul><li><p>trade</p></li><li><p>labor</p></li></ul><p></p>
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willingness to pay

A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. WTP measures how much the buyer values the good.

  • market

  • demand


<p>A buyer’s willingness to pay for a good is the maximum amount the buyer will pay for that good. WTP measures how much the buyer values the good.</p><ul><li><p>market</p></li><li><p>demand</p></li></ul><p></p>
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demand schedule

a table of numbers showing the amounts of a good or service buyers are willing and able to purchase at various prices over a specified period of time

  • demand

  • law of demand


<p>a table of numbers showing the amounts of a good or service buyers are willing and able to purchase at various prices over a specified period of time</p><ul><li><p>demand</p></li><li><p>law of demand</p></li></ul><p></p>
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law of demand

the principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely a decrease in price

  • demand

  • utility


<p>the principle that, other things equal, an increase in a product’s price will reduce the quantity of it demanded, and conversely a decrease in price</p><ul><li><p>demand</p></li><li><p>utility</p></li></ul><p></p>
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demand

a schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time

  • law of demand

  • demand schedule


<p>a schedule or curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time</p><ul><li><p>law of demand</p></li><li><p>demand schedule</p></li></ul><p></p>
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quantity demand

A specific amount or quantity of a good or service an individual is willing and able to buy at a specific price during a given period of time. 

  • demand

  • law of consumer goods


<p><span>A specific amount or quantity of a good or service an individual is willing and able to buy at a specific price during a given period of time.&nbsp;</span></p><ul><li><p>demand</p></li><li><p>law of consumer goods</p></li></ul><p></p>
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demand curve

a curve that illustrates the demand for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity demanded (on the horizontal axis)

  • demand

  • graph


<p>a curve that illustrates the demand for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity demanded (on the horizontal axis)</p><ul><li><p>demand</p></li><li><p>graph</p></li></ul><p></p>
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diminishing marginal utility

as you consume more of a good or service, the extra satisfaction (marginal utility) you get from each additional unit goes down.

  • utility

  • marginal utility


<p>as you consume more of a good or service, the extra satisfaction (marginal utility) you get from each additional unit goes down.</p><ul><li><p>utility</p></li><li><p>marginal utility</p></li></ul><p></p>
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income effect

a change in the quantity demanded of a product that results from a change in the product’s price, resulting in a change in real income (purchasing power)

  • demand

  • income


<p>a change in the quantity demanded of a product that results from a change in the product’s price, resulting in a change in real income (purchasing power)</p><ul><li><p>demand</p></li><li><p>income</p></li></ul><p></p>
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substitution effect

a change in the quantity demanded of a consumer good that results from a change in the good’s price, resulting in a change of its relative expensiveness

  • income effect

  • demand


<p>a change in the quantity demanded of a consumer good that results from a change in the good’s price, resulting in a change of its relative expensiveness</p><ul><li><p>income effect</p></li><li><p>demand</p></li></ul><p></p>
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individual demand

the amount of a specific good or service that a single person or household is willing and able to buy at different prices during a specific time period

  • demand

  • preferences


<p>the amount of a specific good or service that a single person or household is willing and able to buy at different prices during a specific time period</p><ul><li><p>demand</p></li><li><p>preferences</p></li></ul><p></p>
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market demand

by adding the quantities demanded by all consumers at each possible price

  • demand

  • market


<p>by adding the quantities demanded by all consumers at each possible price</p><ul><li><p>demand</p></li><li><p>market</p></li></ul><p></p>
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determinants/shifters of demand

factors other than price that determine the quantities demanded of a good or service

also referred to as “demand shifters” because changes in determinants of demand will cause the demand curve to shift either right or left

  • demand

  • demand curve


<p>factors other than price that determine the quantities demanded of a good or service</p><p>also referred to as “demand shifters” because changes in determinants of demand will cause the demand curve to shift either right or left</p><ul><li><p>demand</p></li><li><p>demand curve</p></li></ul><p></p>
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normal goods

a good or service whose consumption increases when income increases and falls when income decreases, other things equal

  • goods

  • direct relationship


<p>a good or service whose consumption increases when income increases and falls when income decreases, other things equal</p><ul><li><p>goods</p></li><li><p>direct relationship</p></li></ul><p></p>
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substitute goods

a good that can be used in place of another good

  • goods

  • substitution effect


<p>a good that can be used in place of another good</p><ul><li><p>goods</p></li><li><p>substitution effect</p></li></ul><p></p>
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complementary goods

a good that is used together with another good

  • good

  • demand


<p>a good that is used together with another good</p><ul><li><p>good</p></li><li><p>demand</p></li></ul><p></p>
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inferior goods

a good or service whose consumption declines as income rises, other things equal

  • goods

  • inverse relationship


<p>a good or service whose consumption declines as income rises, other things equal</p><ul><li><p>goods</p></li><li><p>inverse relationship</p></li></ul><p></p>
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change in demand

a movement of an entire demand curve (or of the numerical entries in a demand schedule) such that the quantity demanded changes at every particular price; caused by a change in one or more of the determinants of demand

  • demand

  • demand curve


<p>a movement of an entire demand curve (or of the numerical entries in a demand schedule) such that the quantity demanded changes at every particular price; caused by a change in one or more of the determinants of demand</p><ul><li><p>demand</p></li><li><p>demand curve</p></li></ul><p></p>
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change in quantity demand

a change in the quantity demanded along a fixed demand curve (or within a fixed demand schedule) as a result of a change in the price of the product

  • demand

  • price


<p>a change in the quantity demanded along a fixed demand curve (or within a fixed demand schedule) as a result of a change in the price of the product</p><ul><li><p>demand</p></li><li><p>price</p></li></ul><p></p>
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supply

a schedule or curve that shows the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time

  • production

  • goods


<p>a schedule or curve that shows the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time</p><ul><li><p>production</p></li><li><p>goods</p></li></ul><p></p>
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willingness to sell (supply)

A seller will only produce and sell the good if the price exceeds his or her cost. So cost is a measure of a producer's willingness to sell.

  • supply

  • demand


<p><span>A seller will only produce and sell the good if the price exceeds his or her cost. So cost is a measure of a producer's willingness to sell.</span></p><ul><li><p>supply</p></li><li><p>demand</p></li></ul><p></p>
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quantity supplied

A specific amount or quantity of a good or service a producer is willing and able  to provide  at a specific price during a given period of time.

  • supply

  • quantity


<p><span>A specific amount or quantity of a good or service a producer is willing and able&nbsp; to provide&nbsp; at a specific price during a given period of time.</span></p><ul><li><p>supply</p></li><li><p>quantity</p></li></ul><p></p>
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supply schedule

a table of numbers showing the amounts of a good or service producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time

  • supply

  • production


<p>a table of numbers showing the amounts of a good or service producers are willing and able to make available for sale at each of a series of possible prices during a specified period of time</p><ul><li><p>supply</p></li><li><p>production</p></li></ul><p></p>
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law of supply

the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease

  • supply

  • direct relationship


<p>the principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease</p><ul><li><p>supply</p></li><li><p>direct relationship</p></li></ul><p></p>
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supply curve

a curve that illustrates the supply for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity supplied (on the horizontal axis)

  • supply

  • graph


<p>a curve that illustrates the supply for a product by showing how each possible price (on the vertical axis) is associated with a specific quantity supplied (on the horizontal axis)</p><ul><li><p>supply</p></li><li><p>graph</p></li></ul><p></p>
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determinants/shifters of supply

factors other than price that determine the quantities supplied of a good or service

also referred to as “supply shifters” because changes in the determinants of supply will cause the supply curve to shift either right or left

  • supply

  • law of supply


<p>factors other than price that determine the quantities supplied of a good or service</p><p>also referred to as “supply shifters” because changes in the determinants of supply will cause the supply curve to shift either right or left</p><ul><li><p>supply</p></li><li><p>law of supply</p></li></ul><p></p>
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change in supply

a movement of an entire supply curve (or of the numerical entries in a schedule) such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply

  • supply

  • determinants/shifters of supply


<p>a movement of an entire supply curve (or of the numerical entries in a schedule) such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply</p><ul><li><p>supply</p></li><li><p>determinants/shifters of supply</p></li></ul><p></p>
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change in quantity supplied

a change in the quantity supplied of a product along a fixed supply curve (or within a fixed supply schedule) as a result of a change in the product’s price

  • supply

  • determinants of supply


<p>a change in the quantity supplied of a product along a fixed supply curve (or within a fixed supply schedule) as a result of a change in the product’s price</p><ul><li><p>supply</p></li><li><p>determinants of supply</p></li></ul><p></p>
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price elasticity of demand

the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource

  • quantity demanded

  • demand


<p>the ratio of the percentage change in quantity demanded of a product or resource to the percentage change in its price; a measure of the responsiveness of buyers to a change in the price of a product or resource</p><ul><li><p>quantity demanded</p></li><li><p>demand</p></li></ul><p></p>
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mid-point formula

a method for calculating price elasticity of demand or price elasticity of supply that averages the starting and ending prices and quantities when computing percentages

  • price elasticity of demand

  • price elasticity of supply


<p>a method for calculating price elasticity of demand or price elasticity of supply that averages the starting and ending prices and quantities when computing percentages</p><ul><li><p>price elasticity of demand</p></li><li><p>price elasticity of supply</p></li></ul><p></p>
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elastic demand

product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded

as a result, quantity demanded is relatively sensitive to (elastic with respect to) price.

  • price elasticity of demand

  • demand


<p>product or resource demand whose price elasticity of demand is greater than 1, so that any given percentage change in price leads to a larger percentage change in quantity demanded</p><p>as a result, quantity demanded is relatively sensitive to (elastic with respect to) price.</p><ul><li><p>price elasticity of demand</p></li><li><p>demand</p></li></ul><p></p>
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inelastic demand

product or resource demand for which the price elasticity of demand is less than 1, so that any given percentage change in a price leads to a smaller percentage change in quantity demanded

as a result, quantity demanded is relatively insensitive to (inelastic with respect to) price.

  • elastic demand

  • demand


<p>product or resource demand for which the price elasticity of demand is less than 1, so that any given percentage change in a price leads to a smaller percentage change in quantity demanded</p><p>as a result, quantity demanded is relatively insensitive to (inelastic with respect to) price.</p><ul><li><p>elastic demand</p></li><li><p>demand</p></li></ul><p></p>
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unit elasticity

demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price

  • elastic demand

  • inelastic demand


<p>demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price</p><ul><li><p>elastic demand</p></li><li><p>inelastic demand</p></li></ul><p></p>
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perfectly elastic demand

product or resource demand in which quantity demanded can be of any amount at a particular product or resource price

graph is a horizontal demand curve

  • elastic demand

  • quantity demanded


<p>product or resource demand in which quantity demanded can be of any amount at a particular product or resource price</p><p>graph is a horizontal demand curve</p><ul><li><p>elastic demand</p></li><li><p>quantity demanded</p></li></ul><p></p>
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perfectly inelastic demand

product or resource demand in which price can be of any amount at a particular quantity to the product or resource that is demanded

when the quantity demanded does not respond to a change in price

graphs as a vertical demand curve

  • quantity demanded

  • demand


<p>product or resource demand in which price can be of any amount at a particular quantity to the product or resource that is demanded</p><p>when the quantity demanded does not respond to a change in price</p><p>graphs as a vertical demand curve</p><ul><li><p>quantity demanded</p></li><li><p>demand</p></li></ul><p></p>
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total revenue (TR)

the total number of dollars received by a firm (or firms) from the sale of a product

equal to the total expenditures for the product produced by the firm (or firms)

equal to the quantity sold (demanded) multiplied by the price at which it is sold

TR = P * Q

  • total revenue test

  • quantity demand


<p>the total number of dollars received by a firm (or firms) from the sale of a product</p><p>equal to the total expenditures for the product produced by the firm (or firms)</p><p>equal to the quantity sold (demanded) multiplied by the price at which it is sold </p><p>TR = P * Q</p><ul><li><p>total revenue test</p></li><li><p>quantity demand</p></li></ul><p></p>
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total revenue test

a test to determine the elasticity of demand

demand is elastic if total revenue moves in the opposite direction from a price change

it in inelastic when it moves in the same direction as a price change

it is of unitary elasticity when it does not change when price changes

  • elastic demand

  • total revenue


<p>a test to determine the elasticity of demand</p><p>demand is elastic if total revenue moves in the opposite direction from a price change</p><p>it in inelastic when it moves in the same direction as a price change</p><p>it is of unitary elasticity when it does not change when price changes</p><ul><li><p>elastic demand</p></li><li><p>total revenue</p></li></ul><p></p>
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price elasticity of supply

the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price

a measure of the responsiveness of producers to a change in the price of a product or resource

  • supply

  • price elasticity of demand


<p>the ratio of the percentage change in quantity supplied of a product or resource to the percentage change in its price</p><p>a measure of the responsiveness of producers to a change in the price of a product or resource</p><ul><li><p>supply</p></li><li><p>price elasticity of demand</p></li></ul><p></p>
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immediate market period

the length of time during which the producers of a product are unable to change the quantity supplied in response to a change in price and in which there is a perfectly inelastic supply

  • inelastic supply

  • change in quantity supplied


<p>the length of time during which the producers of a product are unable to change the quantity supplied in response to a change in price and in which there is a perfectly inelastic supply</p><ul><li><p>inelastic supply</p></li><li><p>change in quantity supplied</p></li></ul><p></p>
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short run

a period of time in which producers are able to change the quantities of some but not all of the resources they employ

a period in which some resources (usually pant) are fixed and some are variable

  • producers

  • quantity


<p>a period of time in which producers are able to change the quantities of some but not all of the resources they employ</p><p>a period in which some resources (usually pant) are fixed and some are variable</p><ul><li><p>producers</p></li><li><p>quantity</p></li></ul><p></p>
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long run

a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed

  • short run

  • production


<p>a period of time long enough to enable producers of a product to change the quantities of all the resources they employ, so that all resources and costs are variable and no resources or costs are fixed</p><ul><li><p>short run</p></li><li><p>production</p></li></ul><p></p>
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cross price elasticity of demand

the ratio of the percentage of change in quantity demanded of one good to the percentage change in the price of some other good

a positive coefficient indicates the two products are substitute goods

a negative coefficient indicates they are complementary goods

  • quantity demanded

  • substitute goods


<p>the ratio of the percentage of change in quantity demanded of one good to the percentage change in the price of some other good</p><p>a positive coefficient indicates the two products are substitute goods</p><p>a negative coefficient indicates they are complementary goods</p><ul><li><p>quantity demanded</p></li><li><p>substitute goods</p></li></ul><p></p>
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income elasticity of demand

the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income

measures the responsiveness of consumer purchases to income changes

  • quantity demanded

  • income


<p>the ratio of the percentage change in the quantity demanded of a good to a percentage change in consumer income</p><p>measures the responsiveness of consumer purchases to income changes</p><ul><li><p>quantity demanded</p></li><li><p>income</p></li></ul><p></p>