Unit 2 Flashcards
(17 cards)
what is a market?
a market is a group of buyers and sellers of a particular good or service. the buyers as a group determine the demand of a product and sellers determine the supply.
what characteristics must a market have to be perfectly competitive?
- the goods offered are all exactly the same
- the buyers and sellers are so numerous that no single buyer or seller has any influence
what is the law of demand?
the claim that, other things equal, the quanitity demanded of a good falls when the price of the good rises.
what is the demand curve?
a graph of the relationship between the price of a good and the quantity demanded
what is a normal good?
a good for which, other things equal an increase in income leads to an increase in demand
what is an inferior good?
a good for which, an increase in income leads to a decrease in demand
what is a substitute?
two goods for which an increase in the price of one leads to an increase in demand for the other
what is a complement?
two goods for which an increase in the price of one leads to a decrease in the demand for the other
what is quantity supplied?
the amount of a good that sellers are willing and able to sell
what is the law of supply?
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
what is the supply schedule?
a table that shows the relationship between the price of a good and the quantity supplied
what is equilibrium?
a situation in which the price has reached the level where quantity supplied equals quantity demanded
what is equilibrium price?
the price that balances quantity supplied and quantity demanded
what is equilibrium quanitity?
the quantity supplied and the quantity demanded at the equilibrium price
what is equilibrium also sometimes called?
the market clearing price
what is the law of supply and demand?
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good inro balance
what is the three step program for analyzing changes in equilibrium
- decide whether the event shifts the supply or demand curve (or both)
- decide in which direction the curve shifts
- use the supply and demand diagram to see how the shift changes the equilibrium price and quantity
