perfectly competitive market
A market with many sellers and buyers of a homogeneous product and no barriers to entry.
quantity demanded
The amount of a product that consumers are willing and able to pay.
demand schedule
A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus.
individual demand curve
A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus.
Law of Demand
There is a negative relationship between price and quantity demanded, ceteris paribus.
change in quantity demanded
A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by the movement ALONG the demand curve.
market demand curve
A curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.
quantity supplied
The amount of a product that firms are willing and able to sell.
supply schedule
A table that shows the relationship between the price of a product and quantity supplied, ceteris paribus.
individual supply curve
A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.
Law of Supply
There is a positive relationship between price and quantity supplied, ceteris paribus.
change in quantity supplied
A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.
Marginal Principle
Increase the level of an activity as long as its marginal benefit exceeds it marginal cost. Choose the level at which the marginal benefit equals the marginal cost.
market supply curve
A curve showing the relationship between the market price and quantity supplied by all firms, ceteris paribus.
market equilibrium
A situation in which the quantity demanded equals the quantity supplied at the prevailing market price.
excess demand
A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied.
excess supply
A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price.
change in demand
A shift of the demand curve caused by a change in a variable other than the price of the product.
normal good
A good which an increase in income increases demand.
inferior good
A good for which an increase in income decreases demand.
substitutes
Two goods for which an increase in the price of one good increases the demand for the other good.
complements
Two goods for which a decrease in the price of one good increases the demand for the other good.
Causes of an increase in demand (which shifts the demand curve):
-Increase income
-decrease income
-increase in price of a substitute good
-decrease in price of a complementary good
-increase in population
-shift in consumer preferences
-expectations of higher future prices
Causes of a decrease in demand (which shifts the demand curve)
-decrease in income
-increase in income
-decrease in the price of a substitute good
-increase in the price of a complementary good
-decrease in population
-shift in consumer tastes
-expectations of lower future prices
change in supply
A shift of the supply curve caused by a change in a variable other than the price of the product.
When demand changes and the demand curve shifts, price and quantity change in the _______ direction.
same (When demand increases, both price and quantity increase; when demand decreases, both decrease).
When supply changes and the supply curve shifts, price and quantity change in _________ direction.
opposite (When supply increases, the price decreases but the quantity decreases; when supply decreases, the price increases but the quantity decreases).
If the equilibrium price and quantity move the in the same direction, the changes were caused by a change in ______.
demand
If the equilibrium price and quantity move in opposite directions, the changes were caused by a change in _____.
supply