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Demand and Supply
Key Terms
17
Economics
Undergraduate 1
02/02/2009

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Term
Perfectly Competitive Market
Definition
A market that meets the conditions of (1) many buyers and sellers, (2) all firms are selling identical products, and (3) no barriers to new firms entering the market.
Term
Quantity Demanded
Definition
The amount of a good or service that a consumer is willing and able to purchase at a given price.
Term
Demand Curve
Definition
A curve that shows the relationship between the price of a product and the quantity of the product demanded.
Term
Market Demand
Definition
The demand by all consumers of a given good or service.
Term
Law of Demand
Definition
Law that states that when the price of a good falls, the demand for it will increase and when the price of a good rises, the demand will decrease.
Term
Substitution Effect
Definition
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive to other goods that are substitutes.
Term
Income Effect
Definition
The change in the quantity demanded of a good that results from the effect of a change in the good's price in consumers' purchasing power.
Term
Normal Good
Definition
A good for which the demand increases as income rises and decreases as income falls.
Term
Inferior Good
Definition
A good for which the demand increases as income falls and decreases as income rises.
Term
Substitutes
Definition
Goods and services that can be used for the same purpose.
Term
Compliments
Definition
Goods and services that are used together.
Term
Supply Curve
Definition
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
Term
Law of Supply
Definition
The law that states that as price increases, the quantity supplied increases and that decreases in supply will cause a decrease in supply.
Term
Market Equilibrium
Definition
A situation in which quantity demanded equals quantity supplied.
Term
Competitive Market Equilibrium
Definition
A market equilibrium with many buyers and many sellers.
Term
Surplus
Definition
A situation in which the quantity supplied is greater than the quantity demanded.
Term
Shortage
Definition
A situation in which the quantity demanded is greater than the quantity supplied.
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