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Chapter 3: Market Equilibrum and Shifts
Economics: The Basics
20
Economics
Undergraduate 1
08/25/2010

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Term
Excess demand
Definition
When quantity demanded exceeds quantity supplied at the current market price.
Term
Excess supply
Definition
When quantity supplied exceeds quantity demanded at the current market price.
Term
Market mechanism(invisible hand)
Definition

The process by which a market reaches equilibrium without a central planner.

(A term to describe a situation in which individual actions of buyers and sellers tend to result in a positive social outcome).

Term
Market equilibrium
Definition
A situation in which the quantity supplied and the quantity demanded in a specified market are equal.
Term
Equilibrium price
Definition
The price at which quantity supplied equals quantity demanded.
Term
Equilibrium quantity
Definition
The quantity supplied and demanded at the equilibrium price.
Term
Market shifts
Definition
A shift of the demand or supply curve to the left or right, often as the result of events external to the particular market; a change in the quantity demanded or quantity supplied at a given price.
Term
Demand shift
Definition
A change in the amount buyers want to purchase at a given price.
Term
Supply shift
Definition
A change in the amount sellers supply at a given price.
Term
Movement along a demand curve
Definition
The effect of a price change on the quantity demanded.
Term
Movement along a supply curve
Definition
The effect of a price change on the quantity supplied.
Term
Interest rate
Definition
The amount a borrower has to pay a lender each year in exchange for the use of the lender's money; given as a percentage of the loan.
Term
Shift in tastes
Definition
A shift in the demand curve for a good or service based on a change in consumer preferences.
Term
Normal good
Definition
A good or service whose demand rises more or less in step with income.
Term
Luxury good
Definition
A good or service whose demand rises very sharply as income increases.
Term
Inferior goods
Definition
A good or service whose demand falls as income increases.
Term
Inelastic supply
Definition
A situation where the quantity supplied of a good does not change much even if the price changes significantly. More precisely, a situation where the price elasticity of supply is less than 1.
Term
Inelastic demand
Definition
A situation where the quantity demanded does not change much even if the price changes significantly. More precisely, a situation where the price elasticity of demand is less than 1.
Term
Elastic demand
Definition
Intuitively, a situation in which a small change in price has a big impact on quantity demanded. More precisely, a situation in which the price elasticity of demand is greater than 1.
Term
Elastic supply
Definition
Intuitively, a situation in which a small change in price has a big impact on quantity supplied. More precisely, a situation in which the price elasticity of supply is greater than 1.
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