Principles of Microeconomics Chapter 3
demand curve
a curve that shows the relationship between the price of a product and the quantity of the product demanded.
supply curve
a curve that shows the relationship between the price of a product and the quantity of the product supplied.
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 the 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 having 1) many buyers and sellers, 2) all firms selling identical products, and 3) no barriers to new firms entering the market.
technological change
a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.
law of supply
a rule that states 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
a rule that states 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.
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.
complements
goods and services that are used together.
substitutes
goods and services that can be used for the same purpose.
quantity supplied
the amount of a good or service a firm is willing and able to supply at a given price.
quantity demanded
the amount of a good or service that a consumer is willing and able to purchase 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 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 price.
ceteris paribus condition "all else equal"
the requirement that when analyzing the relationship between the two variables- such as the price and quantity demanded- other variables must be held constant.