Chapter 3 Key Terms McConnell and Brue 14th Edition
market
Any institution or mechanism which brings together buyers (demanders) and sellers (suppliers) of a particular good or service.
demand
A schedule showing the amounts of a good or service buyers (or a buyer) wish to purchase at various prices during some time period.
demand schedule
The various amounts (usually in table form) of a product consumers are willing and able to purchase at each of a series of possible prices during a specific period of time.
law of demand
The principle that other things equal an increase in a product’s price will reduce the quantity of it demanded; and conversely for a decrease in price.
diminishing marginal utility
The tendency of a good to yield less marginal utility to the consumer with each successive unit he or she consumes in a specific time period. For example, the second Big Mac consumed will yield less satisfaction to the consumer than did the first.
income effect
A change in the price of a product changes a consumer’s real income (purchasing power) and thus the quantity of the product purchased.
substitution effect
(1) A change in the price of a consumer good changes the relative expensiveness of that good and hence changes the consumer’s willingness to buy it rather than other goods. (2) The effect of a change in the price of a resource on the quantity of the resource employed by a firm assuming no change in its output.
demand curve
A curve illustrating demand.
determinants of demand
Factors other than its price which determine the quantities demanded of a good or service.
normal good
A good or service whose consumption increases when income increases and falls when income decreases price remaining constant.
inferior good
A good or service whose consumption declines as income rises (and conversely) price remaining constant.
substitute good
Products or services which can be used in place of each other. When the price of one falls the demand for the other falls and conversely with an increase of price.
complementary good
Products and services which are used together; when the price of one falls the demand for the other increases (and conversely).
change in demand
A change in the quantity demanded of a good or service at every price; a shift of the demand curve to the left or right.
change in quantity demanded
(Not to be confused with a change in demand: a shift of the entire demand schedule to reflect some change in one or more of the determinants of demand). A change in quantity demanded will result in a movement along an existing demand schedule, from one price-quantity combination to another, caused by a change in price of the product under consideration.
supply schedule
A schedule showing the amounts of a good or service sellers (or a seller) will offer at various prices during some period.
law of supply
The principle that other things equal an increase in the price of a product will increase the quantity of it supplied; and conversely for a price decrease.
supply curve
A curve illustrating supply.
determinants of supply
Factors other than its price which determine the quantities supplied of a good or service.
change in supply
A change in the quantity supplied of a good or service at every price; a shift of the supply curve to the left or right.
change in quantity supplied
(Not to be confused with a change in supply: a shift of the entire supply schedule to reflect some change in one or more of the determinants of supply). A change in quantity supplied will result in a movement along an existing supply schedule, from one point to another, as a result of some change in price of the specific product under consideration.
surplus
The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.
shortage
The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.
equilibrium price
The price in a competitive market at which the quantity demanded and the quantity supplied are equal; where there is neither a shortage nor a surplus; and where there is no tendency for price to rise or fall.
equilibrium quantity
(1) The quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.
rationing function of prices
The ability of market forces in a competitive market to equalize quantity demanded and quantity supplied and to eliminate shortages and surpluses via changes in prices.