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Chapter 3 Key Terms
ECO 251
| Term | Definition |
|---|---|
| demand | the quantities of a good that people are willing and able to buy at different possible prices in a time period |
| quantity demanded | the amount of a good consumers are willing and able to buy at the particular price in a time period |
| law of demand | other things held constant; the higher the price of a good, the lower the quantity demanded |
| substitution effect | people tend to substitute away from a good when its relative price rises |
| income effect | people can less afford to purchase a good when its price rises |
| normal good | a good that exhibits a positive relationship between income and its demand |
| inferior good | a good that exhibits a negative relationship between income and its demand |
| substitutes (demand) | two goods that can be used in place of one another |
| complements (demand) | two goods that are commonly used jointly |
| supply | the quantities of a good that firms are willing and able to offer for sale for different possible prices in a time period |
| quantity supplied | the amount of a good that firms are willing and able to offer for sale at a particular price in a time period |
| law of supply | other things held constant; the higher the price of a good, the greater the quantity supplied |
| equilibrium | when the quantity demanded equals the quantity supplied |
| shortage | when the quantity demanded exceeds the quantity supplied |
| surplus | when the quantity supplied exceeds the quantity demanded |
| price ceiling | a maximum legal price |
| price floor | a minimum legal price |
Created by:
SavanahT
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