Economics Chapter 3 Vocabulary

Technology Change

A change that pertains to the organization's production process.

Demand Curve

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

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied.

Competitive Market Equilibrium

A market equilibrium with many buyers and many 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.

Surplus

A quantity much larger than is needed.

Shortage

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

Demand Schedule

A table that lists the quantity of a good a person will buy at each different price.

Law of Supply

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

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods that are bought and used together.

Substitution Effect

When consumers react to an increase in a good's price by consuming less of that good and more of other goods.

Ceteris Paribus ("all else equal") condition

A Latin phrase that means "all other things held constant".

Market Equilibrium

Condition of price stability where the quantity demanded equals the quantity supplied.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Quantity Supplied

The amount of a good that sellers are willing and able to sell.

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.

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.