Positive analysisAnalysis describing relationships of cause and effect. Normative analysisAnalysis examining questions of what ought to be. ArbitragePractice of buying at al low price at one location and selling at a higher price in another. Perfectly competitiveMarket with many buyers and sellers, so that no single buyer or marketseller has a significant impact on price.
Market pricePrice prevailing in a competitive market.
Extent of marketBoundaries of a market, both geographical and in terms of range of products produced and sold within. Nominal priceAbsolute price of a good, unadjusted for inflation. Real pricePrice of a good relative to an aggregate measure of prices; price adjusted for inflation. Consumer price indexMeasure of the aggregate price level.
Producer price indexMeasure of the aggregate price level for intermediate products and wholesale goods. Chapter 2
Supply curveRelationship between the quantity of a good that producers are willing to sell and the price of the good. Demand curveRelationship between the quantity of a good that consumers are willing to buy and the price of the good. SubstitutesTwo goods for which an increase in the price of one leads to an increase in the quantity demanded of the other. (example beef and chicken) ComplementsTwo goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other. (example gasoline and cars) Equilibrium (or market Tendency in a free market for price to change until the clearing price)market clears.
Market mechanismTendency in a free market for price to change until the market clears. SurplusSituation in which the quantity supplied exceeds the quantity demanded. ShortageSituation in which the quantity demanded exceeds the quantity supplied. ElasticityPercentage change in one variable resulting from a 1-percent increase in another. Price elasticity of demandPercentage change in quantity demanded of a good...