Ch.3 MacroEcon Terms

The law of _______ applies when other things, such as income and the prices of all other goods and services, are held constant.

demand

schedule showing how much of a good or service people will purchase at any price during specified time period, other things being constant

demand

graphical representation of demand schedule. negatively sloped line showing inverse relationship between the price and the quantity demanded (other things being equal)

demand curve

situation when quantity supplied equals quantity demanded at particular price

equilibrium

The ___________ curve normally shows a direct relationship between price and quantity supplied. The _______ ________ curve is obtained by horizontally adding individual supply curves in the market.

supply; market supply

situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price

surplus

goods for which demand falls as income rises

inferior goods

The supply curve is drawn with other things held constant. If these ceteris paribus conditions of supply change, the supply curve will shift. The major ceteris paribus conditions are (1) ____________ (2) ___________ (3) _________ (4)___________ and (5) ______________.

input prices; technology and productivity; taxes and subsidies; expectations of future relative prices; number of firms in the industry

The market clearing price occurs at the __________ of the market demand curve and the market supply curve. It is also called the __________ price, the price from which there is no tendency to change unless there is a change in demand or supply.

intersection; equilibrium

The law of demand posits an _________ relationship between the quantity demanded of a good and its price, other things being equal.

inverse

observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant

law of demand

observation that the higher the price of a good, the more of that good sellers will make available over specified time period, other things being equal

law of supply

Whenever the price is _________ than the equilibrium price, there is an excess quantity demanded (shortage).

less

all of the arrangements that individuals have for exchanging with one another.

market

price that clears the market, at which quantity demanded equals quantity supplied; the price where the demand curve intersects the supply curve

market clearing/equilibrium price

The ________ __________ curve is derived by summing the quantity demanded by individuals at each price.

market demand

demand of all consumers in the marketplace for a particular good or service. the summation at each price of the quantity demanded by each individual

market demand

price expressed in today's dollars; also called the absolute or nominal price

money price

A change in demand comes about only because of a change in the ________ _________ conditions of demand. This change in demand is a shift in the demand curve to the left or to the right.

ceteris paribus

determinants of the relationship between price and quantity that are unchanged along curve. Changes in these factors cause the curve to shift.

ceteris paribus conditions

two goods are _______ when a change in price of one causes an opposite shift in the demand for the other.

complements

We measure the demand schedule in terms of a time dimension and in _____________-quality units.

constant

There is normally a ____________ relationship between price and quantity of a good supplied, other things held constant.

direct

Whenever the price is ____________ than the equilibrium price, there is an excess quantity supplied (a surplus).

greater

Demand curves are drawn with determinants other than the price of the good held constant. These other determinants, called ceteris paribus conditions are (1) __________, (2) ___________, (3) ____________, (4) ___________, and (5) _________ at any given price.

income; tastes and preferences; prices of related goods; expectations about future prices and incomes; market size

If the price changes, we ________ ___________ a curve--there is a change in quantity demanded or supplied. If some other determinant changes, we _________ a curve--there is a change in demand or supply.

move; along; shift

A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant). Such a change in quantity demanded involves a ________ __________ a given demand curve.

movement; along

goods in which demand rises as income rises.

normal goods

money price of one commodity divided by money price of another commodity; number of units of one commodity that must be sacrificed to purchase one unit of another commodity

relative price

situation in which quantity demanded is greater than quantity supplied at a price below market clearing price

shortage

negative tax; payment to a producer form the government, usually in the form of a cash grant per unit

subsidy

when change in the price of one good causes a shift in demand for the other in the same direction as the price changes

substitutes

schedule showing relationship between price and quantity supplied for specified period of time, other things being equal

supply

graphical representation of the supply schedule; line showing supply schedule, which generally slopes upward (positive), other things being equal

supply curve