GLOSSARY. · The law of demand states there is an inverse relationship between the price and the quantity demanded

· The law of demand states there is an inverse relationship between the price and the quantity demanded, ceteris paribus.

· Quantity demanded is the amount of a good that buyers are willing and able to purchase.

· A change in quantity demanded is a movement along a stationary demand curve caused by a change in price. When any of the nonprice determinants of demand changes, the demand curve responds by shifting.

· Nonprice determinants of demand are as follows:

a. The number of buyers;

b. Tastes and preferences;

c. Income (normal and inferior goods);

d. Expectations of future price and income changes;

e. Prices of related goods (substitutes and complements).

· The law of supply states there is a direct relationship between the price and the quantity supplied, ceteris paribus. The market supply curve is the horizontal summation of individual supply curves.

· A change in quantity supplied is a movement along a stationary supply curve caused by a change in price. When any of the nonprice determinants of supply changes, the supply curve responds by shifting.

· A surplus or shortage exists at any price where the quantity demanded and the quantity supplied are not equal. When the price of a good is greater than the equilibrium price, there is an excess quantity supplied, or surplus. When the price is less than the equilibrium price, there is an excess quantity demanded, or shortage.

· Normal good is a good for which, other things equal, an increase in income leads to an increase in demand.

· Inferior good is a good for which, other things equal, an increase in income leads to a decrease in demand.

· Substitutes are two goods for which an increase in the price of one leads to an increase in the demand of the other

· Complements are two goods for which an increase in the price of one leads to a decrease in the demand of the other.

· Quantity supplied is the amount of a good that sellers are willing and able to sell.

· Nonprice determinants of supply are as follows:

a. The number of sellers;

b. Technology;

c. Resource prices;

d. Taxes and subsidies;

e. Expectations of future price changes;

f. Prices of other goods.

· Law of supply and demand is the claim that the price of any good adjusts to bring the supply and demand for that good into balance.

· Equilibrium is the unique price and quantity established at the intersection of the supply and demand curves. Only at equilibrium does quantity demanded equal quantity supplied.

· Elasticity is a measure of how much buyers and sellers respond to changes in market conditions.