Chapter 2 - SUPPLY AND DEMAND Flashcards
The assumption that no relevant economic factors other than the product’s price are changing; Latin for “other things being equal”
ceteris paribus
Two goods that are often used together; a decrease in the price of one good leads to an increase in the demand for the other (or vice versa)
complements
A leftward shift on the demand curve
decrease in demand
The behavior of buyers; the amount of some good or service consumers are willing and able to purchase at each price.
demand
The quantity demanded at various per-unit prices
demand curve
A table that shows a range of prices for a certain good or service and the quantity demanded at each price
demand schedule
Potential buyer or consumer of good or service
demand side
A rightward shift on the demand curve
increase in demand
A good for which for which demand decreases when income increases (and vice versa)
inferior good
The idea that a higher price for a good or service leads people to demand a smaller quantity
law of demand
A way that people exchange goods and services by means of directly reciprocated transfers (unlike gifts), voluntarily entered into for mutual benefit (unlike taxation), that is often impersonal (unlike transfers among friends, family)
market
Many potential buyers, one potential seller; a type or market in which the seller has more relative power than the buyer and can use that power to set the price high
monopoly
Many potential sellers, but only on potential buyer; a type of market in which the buyer has more relative power than the sellers and can use that power to set price low
monopsony
A good for which demand increases when income increases (and vice versa)
normal good
Buyers and sellers know the quality and prices of goods and services from all sellers with certainty (no asymmetric or incomplete information)
perfect information
A market in which the power is diffuse and the playing field is relatively even
perfectly competitive market
What a buyer pays for a unit of the specific good or service
price
The quantity that buyers are willing and able to purchase at a particular per-unit price
quantity demanded
A good or service that we can use in place of another good or service; a decrease in the price of one leads to a decrease in demand for the other (or vice versa)
substitute
Potential seller or producer of the good or service
supply side
Additional costs to purchasing other than price
transaction costs
A leftward shift of the supply curve
decrease in supply
A rightward shift of the supply curve
increase in supply
The goods and services that are used to produce another good or service
inputs
The idea that higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied
law of supply
The quantity that producers are willing and able to sell at a particular price
quantity supplied
The behavior of sellers; the amount of some good or service a producer is willing to supply at each price
supply
Shows the quantity supplied at various prices
supply curve
A table that shows a range of prices for a good or service and the quantity supplied at each price
supply schedule
A change in which price and quantity move together
demand change
When the quantity of supply (Qs) is equal to the quantity of demand (Qd) at a certain price; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change
equilibrium
The only price where the plans of consumers and the plans of producers agree
equilibrium price
Excess demand; occurs when demand is greater than supply
shortage
A change in which price and quantity move in opposite directions
supply change
Excess supply; occurs when supply is greater than demand
surplus
The phenomenon in which we are pushed toward equilibrium when in surplus or shortage; Adam Smith’s concept that individuals’ self-interested behavior can lead to positive social outcomes
the invisible hand of the market
The quantity at which quantity demanded and quantity supplied are equal for a certain price level
equilibrium quantity
The difference between what consumers (as individuals or the market) would be willing to pay for a good or service and what they actually have to pay for it in the market
consumer surplus
The difference between market price and the price at which firms are willing to supply the product
producer surplus
The area above the priceline and below the demand curve
total consumer surplus
The area below the priceline and above the supply curve
total producer surplus
The sum of the producer and consumer surpluses; the area between the demand curve and the supply curve at the quantity being bought and sold; also called social surplus or economic surplus
total surplus
Markets where goods or services are bought and sold illegally—either because they are prohibited or because the equilibrium price is illegal
black market
The loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity
deadweight loss
A maximum price sellers are allowed to charge for a good or service (binding if set below equilibrium)
price ceilings
Legal restrictions on how high or low a market price may go
price controls
A minimum price buyers are required to pay for a good or service (binding if set above equilibrium)
price floors
