MacroEconomics - Chapter 4

Shift of a Demand Curve

movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good.

Shift of a Supply Curve

movement of a supply curve left or right resulting from a change in one of the determinants of supply other than the price of the good.

Money Income

the number of dollars a person receives per period, such as $400 per week.

Law of Demand

the quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, other things constant.

Market Supply

the relation between the price of a good and the quantity all producers are willing and able to sell per period, other things constant.

Individual Supply

the relation between the price of a good and the quantity an individual producer is willing and able to sell per period, other things constant.

Market Demand

the relation between the price of a good and the quantity purchased by all consumers in the market during a given period, other things constant; sum of the individual demands in the market.

Individual Demand

the relation between the price of a good and the quantity purchased by an individual consumer per period, other things constant.

Quantity Demanded

the amount of a good consumers are willing and able to buy per period at a particular price, as reflected by a point on a demand curve.

Law of Supply

the amount of a good that producers are willing and able to sell per period is usually directly related to its price, other things constant.

Quantity Supplied

the amount offered for sale per period at a particular price, as reflected by a point on a given supply curve.

Disequilibrium

the condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium.

Substitution Effect of a Price Change

when the price of a good falls, that good becomes cheaper compared to other goods so consumers tend to substitute that good for other goods.

Equilibrium

the condition that exists is a market when the plans of buyers match those of sellers, so quantity demanded equals quantity supplied and the market clears.

Transaction Costs

the costs of time and information required to carry out market exchange.

Demand

a relation between the price of a good and the quantity that consumers are willing and able to buy per period, other things constant.

Supply

a relation between the price of a good and the quantity that producers are willing and able to sell per period, other things constant.

Supply Curve

a curve showing the relation between price of a good and the quantity producers are willing and able to sell per period other things constant.

Demand Curve

a curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, other things constant.

Income Effect of a Price Change

a fall in the price of a good increases consumers' real income, making consumers more able to purchase goods; for a normal good, the quantity demanded increases.

Normal Good

a good, such as new clothes, for which demand increases, or shifts rightward, as consumer income rises.

Inferior Good

a good, such as used clothes, for which demand decreases, or shifts leftward, as consumer income rises.

Price Ceiling

a maximum legal price above which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price.

Price Floor

a minimum legal price below which a product cannot be sold; to have an impact, a price floor must be set above the equilibrium price.

Shortage

at a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up.

Surplus

at a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down.

Real Income

income measured in terms of the goods and services it can buy; real income changes when the price changes.

Movement Along a Demand Curve

change in quantity demanded resulting from a change in the price of the good, other things constant.

Movement Along a Supply Curve

change in quantity supplied resulting from a change in the price of the good, other things constant.

Tastes

consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve.

Substitutes

goods, such as Coke and Pepsi, that relate in such a way that an increase in the price of one shifts the demand for the other rightward.

Complements

goods, such as milk and cookies, that relate in such a way that an increase in the price of one shifts the demand for the other leftward.