Market
A group of buyers and sellers of a particular good or service
Supply and Demand
Refers to the behavior of people as they interact with one another in markets
Competitive Market
A market in which there are many buyers and many sellers so that each has a negligible impact on the market price
Perfectly Competitive Markets
1. Goods being sold are all the same
2. There are many buyers and sellers, so neither can influence the market price
Price Takers
Buyers and sellers in a competitive market who must accept the price the market determines
Monopoly
A market with only one seller. That seller sets the price.
Oligopoly
A market that has a few sellers that do not always compete aggressively
Monopolistically Competitive
A market that contains many sellers, but each offers a slightly different product. Each seller has some ability to set the price for its own product.
Quantity Demanded
The amount of a good that buyers are willing and able to purchase
Law of Demand
The claim that, other things equal, the quantity demanded of a good falls when the price of a 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
Market Demand
The sum of all the individual demands for a particular good or service
Increase in Demand
Shifts the demand curve to the Right
Decrease in Demand
Shifts the demand curve to the Left
Normal Good
A good for which, other things equal, an increase in income leads to an increase in demand
Inferior Good
A good for which, other things 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 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
Determinants of Demand
Income, Prices of Related Goods, Tastes, Expectations, and Number of Buyers
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
Supply Curve
A graph of the relationship between the price of a good and the quantity supplied
Market Supply
The sum of the supplies of all sellers
Increase in Supply
Shifts the supply curve to the Right
Decrease in Supply
Shifts the supply curve to the Left
Determinants of Supply
Input Prices, Technology, Expectations, and Number of Sellers
Equilibrium
A situation in which the price has reached the level where quantity supplied equals quantity demanded
Equilibrium Price
The price that balances quantity supplied and quantity demanded
Also called the "Market Clearing Price
Equilibrium Quantity
The quantity supplied and the quantity demanded at the equilibrium price
Surplus
A situation in which quantity supplied is greater than quantity demanded.
Sellers are unable to sell all they want at the going price.
Excess Supply
Shortage
A situation in which quantity demanded is greater than quantity supplied.
Consumers are unable to buy all they want at the going price.
Excess Demand
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
Shift in Supply/Demand Curve
Called "A change in supply/demand
Movement Along a Fixed Supply/Demand Curve
Called "A change in quantity supplied/quantity demanded
Prices
The signals that guide economic decisions and thereby allocate scarce resources.