Chapter 3 Flashcards
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.
Market
All of the arrangements that individuals have for exchanging with one another. Thus, for example, we can speak of the labor market, the automobile market, and the credit market.
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.
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.
Money price
The price expressed in today’s dollars; also called absolute or nominal price.
Demand curve
A graphical representation of the demand schedule. It is negatively sloped line showing the inverse relationship between the price and the quantity demanded (other things being equal).
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.
Ceteris paribus conditions
Determinants if the relationship between the price and quantity that are unchanged along a curve. Changes in these factors cause the curve to shift.
Normal goods
Goods for which demand rises as income rises. Most goods are normal goods.
Inferior goods
Goods for which demand falls as income rises.
Substitutes
Two goods are substitutes 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 are complements when a change in the price of one causes an opposite shift in the demand for the other.
