Glossary

Aggregate Demand The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. It is also known as "total spending". Aggregate Supply The total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally, there is a positive relationship between aggregate supply and the price level. It is also known as total output. Choke Price This is the price at which all demand is choked off. At any price below the choke, a good is demanded. At any price equal to or above the choke price, no goods are demanded. It is an economic term used to describe the price at which the quantity demanded of a good is equal to zero. Demand Shock A sudden surprise event that temporarily increases or decreases demand for goods or services. A positive demand shock increases demand, while a negative demand shock decreases demand. Both positive and negative demand shock have an effect on the prices of goods and services. Disequilibrium A situation where internal and/or external forces prevent market equilibrium from being reached or cause the market to fall out of balance. This can be a short-term by-product of a change in variable factors or a result of long-term structural imbalances. Equilibrium The state in which market supply and demand balances each other and, as a result, prices become stable. Import Quota

In the context of international trade, this is a limit put on the amount of a specific good that can be imported. Price Ceiling The maximum price a seller is allowed to charge for a product or service. Price ceilings are usually set by law and limit the seller pricing system to ensure fair and reasonable business practices. Price Floor A price floor is a government- or group-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price.

Substitute Goods A product or service that satisfies the need of a consumer that another product or service fulfills. A substitute can be perfect or imperfect depending on whether the substitute completely or partially satisfies the consumer. Supply Shock An unexpected event that changes the supply of a product or commodity, resulting in a sudden change in its price. Supply shocks can be negative (decreased supply) or positive (increased supply); however, they are almost always negative and rarely positive. Assuming aggregate demand is unchanged, a negative supply shock in a product or commodity will cause its price to spike upward, while a positive supply shock will exert downward pressure on its price. Tariff A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers. They are one of several tools available to shape trade policy.