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AP MACRO CH 4

The Market Forces of Supply and Demand

QuestionAnswer
Market A group of buyers and sellers of a particular good or service.
Competitive Market A market in which there are many buyers and many sellers so that each has a negligible impact on the marker price.
Perfectly Competitive (1)the goods being offered for sale all the same, and (2)the buyers and sellers are so numerous that no single buyer or seller can influence the market price.
Monopoly Markets with only one sellers who sets prices.
Oligopoly A market with few sellers that do not always compete. For example, airline routes; if the route between two cities is only received by one or two carriers, they don't compete to keep prices high.
Monopolistically Competitive Many sellers, each offering slightly different products. B/c products are not the same, each seller may set their own prices.
Quantity Demand The amount of a good that buyers are willing and able to purchase.
Law of Demand The claim that, other things equal, the quantity demanded of a good falls when the price of a the good rises.
Normal Good A good for which, other things equal, an increase in income leads to an increase in demand.
Inferior Good A good for which, other things equal, an increase in income leads to a decrease in demand.
Substitutes Two goods for which an increase in the price of one leads to an increase in the demand for the other.
Compliments Two goods for which an increase in the price of one leads to a decrease in the demand for the other.
Demand Schedule A table that shows the relationship between the price of a good and the quantity demanded.
Demand Curve A graph of the relationship between the price of a good and the quantity demanded.
Ceteris Paribus Assume that all other variables are constant, other than the ones being studied.
Market Demand The sum of all the individual demand for a particular good or service.
Quantity Supplied The amount of a good that sellers are wiling and able to sell.
Law of Supply The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
Supply Schedule A table that shows the relationship between the prices of a good and the quantity supplied.
Supply Curve A graph of the relationship between the price of a good and the quantity supplied.
Equilibrium A situation in which supply and demand have been brought into balance.
Equilibrium Price The price that balances supply and demand.
Equilibrium Quantity The quantity supplied and the quantity demanded when the price has adjusted to the balance supply and demand.
Surplus When quantity supplied is greater than quantity demanded.
Shortage When quantity demanded is greater than quantity supplied.
Law of Supply and Demand The claim that the price of any good adjusts to bring the supply and demand of a good into balance.
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