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Chapter 3- Demand and Supply
Econ
26
Economics
Undergraduate 2
06/03/2012

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Term
Market
Definition
Place were buying, selling and trading take place
Term
Demand
Definition
A showing of how much a good or service people will buy at any price during a specific period
Term
Law of Demand
Definition
When price goes up, people buy less
when price drops, people buy more
Term
Relative price
Definition
The average price
Term
Money price
Definition
price we see today.
-$40
Term
Demand curve
Definition
Graph showing the demand schedule, a negatively sloped line showing the relationship with price and quantity
Term
Market demand
Definition
Demand of all in the marketplace for a particular good or service
Term
How do you find market demand?
Definition
By averaging the demand by the number of people who want them. Demand+buyers=average
Term
Ceteris Paribus conditions
Definition
Factors between the price and quantity that are unchanged along the curve. Changes in these factors cause the curve to shift.
Term
Normal goods
Definition
Goods like shoes, computers and cars that rise in demand when consumer income rises
-ex: I have more money, ill go buy some shoes (shoes would be the normal goods)
Term
Inferior goods
Definition
Goods that are not demanded as much when a consumer's income rises
-ex: the bus, canned food, welfare
Term
Substitutes
Definition
Two goods can be substitutes when a change in price of one causes a shift in demand for the other
Term
2 types of inter-dependencies
Definition
1. Substitutes
2. Compliments
Term
Compliment
Definition
When one good is benefited from a drop in price from another good
-ex: computers that drop to $100 allows people to go and buy computer appliances
Term
Expectation
Definition
Consumers expectations with future prices and incomes will prompt them to buy more or less of something without a change in its current price
Term
Changes in demand
Definition
Consumers either want the good or don't want it, changing the demand for the good entirely
Term
Changes in quantity demand
Definition
When price changes, quantity demand changes
Term
Supply
Definition
Amount of goods at a certain price
Term
Law of supply
Definition
Increase in price=increase in quantity
decrease in price=decrease in quantity
Term
Supply curve
Definition
Graph showing price vs. supply
Term
The Market Supply Curve
Definition
Average of the supply
Term
Subsidy
Definition
Payment to the producer from the government.
ex: EU gov. giving payment to a road company to help transportation
Term
Clearing market/equilibrium price
Definition
Price that clears the market.
-when quantity demanded equals quantity supplied
Term
Equilibrium point
Definition
Point where demand intersects with supply
Term
Shortage
Definition
When demand is higher than supply
Term
Surplus
Definition
Supply is more than the demand
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