ceteris paribus other things being equal

command economy an economy where economic decisions are passed down from government authority and where resources are owned by the government; also called a “planned economy”

competitive market a large market in which there is a large number of buyers and sellers, so that no one can control the market price

free market a market in which the government does not intervene in any way

complements goods that are often used together, so consumption of one good tends to enhance consumption of the other

demand the amount of a good or service that consumers are willing and able to purchase at each price

demand curve a graphic representation of the relationship between price and quantity of a certain good or service demanded, with quantity on the horizontal axis and the price on the vertical axis

demand schedule a table that shows a range of prices for a certain good or service and the quantity demanded at each price

equilibrium when the quantity demanded is equal to the quantity supplied

equilibrium price the price where quantity demanded is equal to quantity supplied

equilibrium quantity the quantity at which quantity demanded and quantity supplied are equal for a certain price level

inferior good a product whose demand falls when income rises, and vice versa

inputs the combination of labor, materials, and machinery used to produce goods and services; also called “factors of production”

law of demand states that more of a good will be demanded (bought) the lower its price, and less of a good will be demanded (bought) the higher its price, ceteris paribus (other things being equal)

law of supply states that more of a good will be provided the higher its price; less will be provided the lower its price, ceteris paribus (other things being equal)

market interaction between potential buyers and sellers; a combination of demand and supply

market economy an economy in which economic decisions are decentralized, resources are owned by private individuals, and businesses supply goods and services based on demand

normal good a product whose demand rises when income rises, and vice versa

outputs goods or services

price what a buyer pays for a unit of a specific good or service

quantity demanded the total number of units of a good or service that consumers are willing to purchase at a given price

quantity supplied the total number of units of a good or service that producers are willing to sell at a given price

shift in demand when a change in some economic factor (other than price) causes a different quantity to be demanded at every price

shift in supply when a change in some economic factor (other than price) causes a different quantity to be supplied at every price

shortage at the existing price, the quantity demanded exceeds the quantity supplied; also called “excess demand”

subsidy when the government pays a firm directly or reduces the firm’s taxes if the firm carries out certain actions

substitute a good that can replace another to some extent, so greater consumption of one good tends to mean less of the other

supply the amount of a good or service that a producer is willing to supply at each price

supply curve a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis

supply schedule a table that shows a range of prices for a good or service and the quantity supplied at each price

surplus at the existing price, the quantity supplied exceeds the quantity demanded; also called “excess supply”