Quantity demanded
The amount of a good, service, or resource that people are willing and able to buy during a specified period at a specified price.
Demand
Demand is the relationship between the quantity demanded and the price of a good when all other influences on buying plans remain the same.
Market demand
Market demand is the sum of the demands of all the buyers in a market.
Substitute
A substitute is a good that can be consumed in place of another good. For example, apples and oranges are substitutes.
Complement
A complement is a good that is consumed with another good. For example, ice cream and fudge sauce are complements.
Normal good
A normal good is a good for which the demand increases if income increases and demand decreases if income decreases.
Inferior good
An inferior good is a good for which the demand decreases if income increases and demand increases if income decreases.
Quantity supplied
Quantity supplied is the amount of a good, service, or resource that people are willing and able to sell during a specified period at a specified price.
Supply Schedule
A supply schedule is a list of the quantities supplied at each different price when all other influences on selling plans remain the same.
Market supply
Market supply is the horizontal sum of the supplies of all sellers in a market.
The main influences on selling plans that change supply are (3)
Prices of related goods Prices of resources and other inputs Expected future prices Number of sellers Productivity
The main influences on buying plans that change demand are (3)
Prices of related goods Expected future prices Income Expected future income and credit Number of buyers Preferences
Substitute in production
A substitute in production is a good that can be produced in place of another good.
For example, a truck and an SUV are substitutes in production in an auto factory. The supply of truck increases if the price of SUV falls.
Complement in production
A complement in production is a good that is produced along with another good.
For example, cream is a complement in production of skim milk in a dairy. The supply of cream increases if the price of skim milk rises.
Consumers regard Dell computers and Apple computers as substitutes. If the price of a Dell computer decreases, the A) demand for Dell computers increases. B) demand for Apple computers increases. C) demand for Apple computers decreases. D) supply of Dell computers increases. E) demand for Dell computers decreases.
C) demand for Apple computers decreases.
A huge 50 percent off sale on golf clubs is advertised for next week. What happens this week in the market for golf clubs?
A) The supply of golf clubs increases.
B) The supply of golf clubs decreases.
C) The demand for golf clubs increases.
D) The demand for golf clubs decreases.
E) The demand for and the supply of golf clubs decreases.
D) The demand for golf clubs decreases.
Market equilibrium
Market equilibrium occurs when the quantity demanded equals the quantity supplied.
At market equilibrium, buyers’ and sellers’ plans are consistent.
Equilibrium price
Equilibrium price is the price at which the quantity demanded equals the quantity supplied.
Equilibrium quantity
Equilibrium quantity is the quantity bought and sold at the equilibrium price.
Law of market forces
When there is a shortage, the price rises. Shortage occurs when the quantity demanded exceeds the quantity supplied.
When there is a surplus, the price falls. Surplus occurs when the quantity supplied exceeds the quantity demanded.
Decrease in Both Demand and Supply
Decreases the equilibrium quantity.
The change in the equilibrium price is ambiguous because the decrease in demand lowers the price and the decrease in supply raises the price.
Decrease in Demand and Increase in Supply
Lowers the equilibrium price.
The change in the equilibrium quantity is ambiguous because the decrease in demand decreases the quantity and the increase in supply increases the quantity.
Increase in Demand and Decrease in Supply
Raises the equilibrium price.
The change in the equilibrium quantity is ambiguous because the increase in demand increases the quantity and the decrease in supply decreases the quantity.
Tax incidence (distortions)
Tax incidence is the division of the tax between the buyer and the seller. When a good is taxed, it has two prices:
A price that includes the tax
A price that excludes the tax
Buyers respond to the price that includes the tax. Sellers respond to the price that excludes the tax. The tax is like a wedge between the two prices.
Production quota
A production quota is a government regulation in a market that places an upper limit on the quantity that may be supplied.
Price ceiling or Price cap
A price ceiling or price cap is a government regulation that places an upper limit on the price at which a particular good, service, or factor of production may be traded.
Price floor
A price floor is a government regulation that places a lower limit on the price at which a particular good, service, or factor of production may be traded.
Imports
Imports are the good and services that we buy from people in other countries.
Exports
Exports are the goods and services we sell to people in other countries.
What is the fundamental force that generates trade between nations
The fundamental force that generates trade between nations is comparative advantage.
