Ch.3 Demand, Supply, and Market Equilibrium

demand
A schedule showing the amounts of a good or service that buyers (or a buyer) wish to purchase at various prices during some time period.
demand schedule
Same definition as demand.
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 for a decrease in price.
diminishing marginal utility
The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases.
income effect
A change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product’s price.
substitution effect
(1) A change in the quantity demanded of a consumer good that results from a change in its relative expensiveness caused by a change in the product’s price; (2) the effect of a change in the price of a resource on the quantity of the resource employed by a firm, assuming no change in its output.
demand curve
A curve illustrating demand.
determinants of demand
Factors other than price that determine the quantities demanded of a good or service.
normal good
A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.
inferior good
A good or service whose consumption declines as income rises, prices held constant.
substitute good
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
complementary good
Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).
change in demand
A movement of an entire demand curve or schedule such that the quantity demanded changes at every particular price; caused by a change in one or more of the determinants of demand.
change in quantity demanded
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.
supply
A schedule showing the amounts of a good or service that sellers (or a seller) will offer at various prices during some period.
supply schedule
Same definition as supply.
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 curve
A curve that illustrates supply.
determinants of supply
Factors other than price that determine the quantities supplied of a good or service.
change in supply
A movement of an entire supply curve or schedule such that the quantity supplied changes at every particular price; caused by a change in one or more of the determinants of supply.
change in quantity supplied
A change in the quantity supplied along a fixed supply curve (or within a fixed supply schedule) as a result of a change in the product’s price.
equilibrium price
The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.
equilibrium quantity
(1) The quantity at which the intentions of buyers and sellers in a particular market match at a particular price such that the quantity demanded and the quantity supplied are equal; (2) the profit-maximizing output of a firm.
surplus
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
shortage
The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
productive efficiency
The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal product per dollar’s worth of input is the same for all inputs.
allocative efficiency
The apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal, and at which the sum of consumer surplus and producer surplus is maximized.
price ceiling
A legally established maximum price for a good or service.
price floor
A legally determined minimum price above the equilibrium price.
Demand, law demand, inverse
BLANK is a schedule or curve representing the willingness of buyers in a specific period to purchase a particular product at each of various prices. The BLANK of BLANK implies that consumers will buy more of a product at a low price than at a high price. So, other things equal, the relationship between price and quantity is negative or BLANK and is graphed as a downsloping curve.
Market demand curves
BLANK BLANK BLANKS are found by adding horizontally the demand curves of the many individual consumers in the market.
right, left, price
Changes in one or more of the determinants of demand (consumer tastes, the number of buyers in the market, the money incomes of consumers, the prices of related goods, and consumer expectations) shift the market demand curve. A shift to the BLANK is an increase in demand; a shift to the BLANK is a decrease in demand. A change in demand is different from a change in the quantity demanded, the latter being a movement from one point to another point on a fixed demand curve because of a change in the product’s BLANK.
Supply, law supply, direct
BLANK is a schedule or curve showing the amounts of a product that producers are willing to offer in the market at each possible price during a specific period. The BLANK of BLANK states that, other things equal, producers will offer more of a product at a high price than at a low price. Thus, the relationship between price and quantity is positive or BLANK, and is graphed as an upsloping curve.
market supply curve
The BLANK BLANK BLANK is the horizontal summation of the supply curves of the individual producers of the product.
right, left, price
Changes in one or more of the determinants of supply (resource prices, production techniques, taxes or subsidies, the prices of other goods, producer expectations, or the number of sellers in the market) shift the supply curve of a product. A shift to the BLANK is an increase in supply; a shift to the BLANK is a decrease in supply. In contrast, a change in the BLANK of the product being considered causes a change in the quantity supplied, which is shown as a movement from one point to another point on a fixed supply curve.
equal
The equilibrium price and quantity are established at the intersection of the supply and demand curves. The interaction of market demand and market supply adjusts the price to the point at which the quantities demanded and supplied are BLANK. This is the equilibrium price. The corresponding quantity is the equilibrium quantity.
prices, productive efficiency, allocative efficiency
The ability of market forces to synchronize selling and buying decisions to eliminate potential surpluses and shortages is known as the rationing function of BLANKS. The equilibrium quantity in competitive markets reflects both BLANK BLANKY (least-cost production) and BLANK BLANKY (producing the right amount of the product relative to other products).
equilibrium
A change in either demand or supply changes the BLANK price and quantity. Increases in demand raise both equilibrium price and equilibrium quantity; decreases in demand lower both equilibrium price and equilibrium quantity. Increases in supply lower equilibrium price and raise equilibrium quantity; decreases in supply raise equilibrium price and lower equilibrium quantity.
Simultaneous
BLANK changes in demand and supply affect equilibrium price and quantity in various ways, depending on their direction and relative magnitudes.
price ceiling
A BLANK BLANK is a maximum price set by government and is designed to help consumers. When effective, they produce persistent product shortages, and if an equitable distribution of the product is sought, government must ration the product to consumers.
price floor
A BLANK BLANK is a minimum price set by government and is designed to aid producers. When effective, they lead to persistent product surpluses; the government must either purchase the product or eliminate the surplus by imposing restrictions on production or increasing private demand.
fixed
Legally BLANKED prices stifle the rationing function of prices and distort the allocation of resources.