ECON 2305-036: Chapter 3

Demand curve

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

Subsidy

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

Demand

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

Supply

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

Shortage

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

Surplus

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

Normal goods

Goods for which demand rises as income rises. Most goods fall under this category

Determinant

A change or shift in demand is a movement of the entire curve. The only thing that can cause the entire curve to move is a change in a _____________ other than the good's own price.

Ceteris paribus conditions

A change, or shift, in supply is a movement of the entire curve. The only thing that can cause the entire curve to move is a change in one of the ___________________

Inferior goods

Goods for which demand falls as income rises

Along

A change in a good's own price leads to a change in quantity demanded for any given demand curve, other things held constant. This is a movement ______ the curve.

Shift of

A change in any ceteris paribus condition for supply leads to a change in supply. This causes a _________ the curve.

Shift of

A change in any of the ceteris paribus conditions for demand leads to a change in demand. This causes a ________ the curve.

Along

A change in price leads to a change in the quantity supplied, other things being constant. This is a movement ______ the curve.

Market

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

Ceteris paribus conditions

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

Market demand

The 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

Supply curve

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

Relative price

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

Law of supply

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

Law of demand

The 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.

Money price

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

Market clearing or equilibrium price

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

Equilibrium

The situation when quantity supplied equals quantity demanded at a particular price

Substitutes

Two goods fall under this category when a change in the price of one causes a shift in demand for the other in the same direction as the price change

Complements

Two goods fall under this category when a change in the price of one causes an opposite shift in the demand for the other