ECON 1110 Chapter 3
Demand Curve
A graph illustrating how much of a given product a household would be willing to buy at different prices.
Supply Curve
A graph illustrating how much of a product a firm will sell at different prices.
Entrepreneur
A person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.
Shortage
Also known as excess demand. The condition that exists when quantity demanded exceeds quantity supplied at the current price.
Surplus
Also known as excess supply. The condition that exists when quantity supplied exceeds quantity demanded at the current price.
Firm
An organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.
Community Indifference Curve (CIC)
Captures the trade-off in consumption for consumers for a given level of utility. A CIC is just the sum of all the individual indifference curves of consumers in an economy.
Normal Goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
Inferior Good
Goods for which demand tends to fall when income rises.
Complementary Goods
Goods that "go together;"a decrease in the price of one results in an increase in demand for the other and vice versa.
Substitutes
Goods that can serve as replacements for one another; when the price of one increases, demand for the other increases.
Circular Flow of Economic Activity
Here, goods and services flow counter-clockwise: Labor services supplied by households flow to firms, and goods and services produced by firms flow to households. Payment flows in the opposite direction: Payment for goods and services flows from households to firms, and payment for labor services flows from firms to households.
Perfect Substitutes
Identical products.
Demand Schedule
Shows how much of a given product a household would be willing to buy at different prices for a given time period.
Supply Schedule
Shows how much of a product firms will sell at alternate prices.
Quantity Demanded
The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price.
Quantity Supplied
The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a given time period.
Movement Along a Demand Curve
The change in quantity demanded brought about by a change in price.
Movement Along a Supply Curve
The change in quantity supplied brought about by a change in price.
Shift of a Demand Curve
The change that takes place in a demand curve corresponding to a new relationship between quantity demanded of a good and price of that good. The shift is brought about by a change in the original conditions.
Shift of a Supply Curve
The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the original conditions.
Equilibrium
The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
Households
The consuming units in an economy.
Profit
The difference between revenue and cost.
Land Market
The input/factor market in which households supply land or other real property in exchange for rent.
Capital Market
The input/factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.
Labor Market
The input/factor market in which households supply work for wages to firms that demand labor.
Factors of Production
The inputs into the production process. Land, labor, and capital are the three key factors of production.
Output Markets
The markets in which goods and services are exchanged. Also known as Product Markets.
Input Markets
The markets in which the resources used to produce goods and services are exchanged. Also known as Factor Markets.
Law of Demand
The negative relationship between price and quantity demanded: Ceteris paribus, as price rises, quantity demanded decreases; as price falls, quantity demanded increases.
Law of Supply
The positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.
Income
The sum of all a household's wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.
Market Supply
The sum of all that is supplied each period by all producers of a single product.
Market Demand
The sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.
Net Worth
The total value of what a household owns minus what it owes. It is a stock measure.