Chapter #4: The Market Forces of Supply and Demand

What is a market?

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

What is a competitive market?

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

What is quantity demanded?

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

What is the law of demand?

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

What is the demand curve?

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

normal good

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

inferior good

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

quantity supplied

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

law of supply

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

supply curve

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

equilibrium

a situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded

equilibrium price

the price that balances the quantity supplied and the quantity demanded

equilibrium quantity

the quantity supplied and the quantity demanded at the equilibrium price

surplus

a situation in which the quantity supplied is greater than the quantity demanded

shortage

a situation in which the quantity demanded is greater than the quantity supplied

law of supply and demand

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