September 20 2012
Chapter 4: The Market Forces of Supply and Demand
Market: a group of buyers and sellers of a particular good or service
Competitive Market: a market in which there are many buyers and sellers, each has
a negligible impact on the market price.
Normal good: a good for which, other things equal an increase in income leads to
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 one good results in an increase in
demand for the other
Complements: two goods for which an increase in the price of one leads to the
decrease in demand for the other
Quantity Demanded: the amount of a good that buyers are willing to purchase
Demand schedule: a table that shows the relationship between the price of a good
and the quantity demanded.
Demand curve: a graph that shows the relationship between the price and demand
of a good.
A shift to the right indicates increase in demand
A shift to the left indicates decrease in demand
Law of demand: the quantity of a good falls when the price rises (inverse