1.2 The Market Flashcards
Demand
Amount of a good that consumers are willing and able to buy at a given price
Supply
Quantity of a good or service that a producer is willing and able to make available on the market, at a given price
Equilibrium Price
Price at which the amount supplied is equal to the amount demanded
Surplus / excess supply
Supply exceeds demand
Shortage / excess demand
Demand exceeds supply
Price elasticity of demand
Measures the responsiveness of demand to a change in price
Elastic Demand
Consumer demand is sensitive to changes in price
Inelastic Demand
Changes in prices will have little or no effect on the amount demanded
Income elasticity of demand
Measures the responsiveness of demand to changes in income
Necessity good
Good which demand increases when income increases
Inferior Good
Good which demand decreases when income increases
Luxury Good
Good which demand increases more than proportionally as income increases