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MicroEco Ch. 3
Microeconomics Chapter 3 Demand, Supply, & Market Equilibrium
| Term | Definition |
|---|---|
| Demand | Schedule or curve that hows the various amounts of a product that consumers are willing and able to purchase at each of a series of possible prices during a specified period of time |
| Law of Demand | Inverse relationship: Price falls, quantity demanded rises. Price rises, quantity demanded falls |
| Diminishing Marginal Utility | in any specific time period, each buyer of a product will derive less satisfaction from each successive unit of the product consumed |
| Income Effect | Lower price increase the purchasing power of a buyer's money income, enabling the buyer to purchase more of the product than before |
| Substitution effect | Lower price buyers have the incentive to substitute what is now a less expensive product for other products that are now relatively more expensive |
| Demand Curve | Points connected into a smooth curve |
| Determinations of Demands | Factors that can/do affect purchases |
| Normal Goods | Products whose demand varies directly with money income |
| Inferior Goods | Goods whose demand varies inversely with money income |
| Substitute Good | Good that can be used in place of another good |
| Complementary Good | Good that is used together with another good |
| Change in Demand | Shift of the demand curve to the right or left |
| Change in Quantity Demanded | Movement from one point to another point, from one price-quanity combination to another- on a fixed demand curve |
| Supply | Schedule/curve showing the various amounts of a product that producers are willing and able to make available for sale at each of a series of possible prices during a specific period |
| Law of Supply | As price rises, the quantity supplied rises; as price falls, the quantity supplied falls |
| Supply Curve | Corresponds with the price-quantity supplied data. Upward slope reflects the law of supply. |
| Determinants of Supply | Resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, number of sellers in the market. |
| Change in Supply | Change in the schedule and a shift of the curve. |
| Change in Quantity Supplied | Movement from one point to another on a fixed supply curve. |
| Equilibrium Price | Price where the intentions of buyers and sellers match |
| Equilibrium Quantity | Quantity at which the intentions of buyers and sellers match, so that the quantity demanded and the quantity supplied are equal |
| Productive Efficiency | The production of any particular good in the least costly way |
| Allocative Efficiency | The particular mix of goods and services most highly valued by society |
| Price Ceiling | Sets the maximum legal price a seller may charge for a product or service. |
| Price Floor | Minimum price fixed by the government |
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