demand
the desire, willingness, and ability to buy a good or service; schedule or curve
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
law of demand
economic law that states that consumers buy more of a good when its price decreases and less when its price increases
diminishing marginal utility
successive units of a particular product yield less and less marginal utility
income effect
the change in consumption resulting from a change in real income
substitution effect
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
demand curve
a graph of the relationship between the price of a good and the quantity demanded
determinants of demand
Anything other than price of the current item that influences consumer buying decisions, including income, tastes and preferences, price of related items (substitutes and complements), number of consumers in the market, and expected future price.
change in demand
a change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.
normal goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
inferior goods
goods whose demand varies inversely with money income;, a good or service whose consumption declines as income rises (and conversely), price remaining constant.
substitute good
goods that can be used to replace the purchase of similar goods when prices rise
complementary good
Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).
consumer expectations
The idea that changes in expectations about the future can change the amount of real output demanded.
change in quantity demanded
movement along the demand curve, from one point to another, due to a change in price
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
supply
the amount of a product that would be offered for sale at all possible prices that could prevail in the market
law of supply
Tendency of suppliers to offer more of a good at a higher price
supply curve
a graph of the relationship between the price of a good and the quantity supplied
determinants of supply
Anything other than price of the current item that influences production decisions, including cost of raw materials, cost of labor, level of technology used to produce, number of producers in the market, price of related products, and expected future pric
change in quantity supplied
movement from one point to another on a fixed supply curve
change in supply
change in the entire schedule and a shift of the entire curve right or left. cause is a change in one or more determinant of supply.
equilibrium price
the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
surplus
situation in which quantity demanded is less than quantity supplied
shortage
situation in which quantity demanded is greater than quantity supplied
rationing function of prices
ability of competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent
productive efficiency
the situation in which a good or service is produced at the lowest possible cost
allocative efficiency
the particular mix of goods and services most highly valued by society
price ceiling
a maximum price that can be legally charged for a good or service
price floor
a legal minimum on the price at which a good can be sold