Principles of Microeconomics Chapter 3 Key Terms

Technological Change

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Supply Curve

A curve that shows the relationship between the price of a produce and the quantity of the product supplied.

Demand Curve

A curve that shows the relationship between the price of a product and the quantity of that product demanded.

Inferior Good

A good for which the demand increases as income falls and decreases as income rises.

Normal Good

A good for which the demand increases as income rises and decreases as income falls.

Competitive Market Equilibrium

A market equilibrium with many buyers and sellers.

Perfectly Competitive Market

A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

Market Equilibrium

A situation in which quantity demanded equals quantity supplied.

Shortage

A situation in which the quantity demanded is greater than the quantity supplied.

Surplus

A situation in which the quantity supplied is greater than the quantity demanded.

Demand Schedule

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Supply Schedule

A table that shows the relationship between the price of a product and the quantity of the product supplied.

Ceteris Paribus ("all else equal") Condition

The requirement that when analyzing the relationship between 2 variables, such as price and quantity demanded, other variables must be held constant.

Law of Supply

The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in the price causes decreases in the quantity supplied.

Law of Demand

The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Complements

Goods and services that are used together.

Substitutes

Goods and services that can be used for the same purpose.

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Quantity Supplied

The amount of a good or service that a firm is willing and able to supply at a given price.

Substitution Effect

The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes.

Income Effect

The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power, holding all other factors constant.

Demographics

The characteristics of a population with respect to age, race and gender.

Market Demand

The demand by all the consumers of a given good or service.