Chapter 3: Demand and Supply Flashcards
Market
Any place people come together to trade
Demand
The willingness and ability of buyers to purchase different quantities of a good
at different prices
during a specific time period.
Two important aspects of demand
- Willing
- Able
to undergo the purchase
Law of demand
As the price of a good rises, the quantity demanded of the good falls (ceteris paribus), and vice versa.
Demand Schedule
The numberical tabulation of the quantity demanded of a good at different prices. A demand schedule is the numerical representation of the law of demand.
Demand Curve
The graphical representation of the law of demand.
Law of Diminishing Marginal Utility
For a given time period, the marginal utility of satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases.
Quantity demanded
The NUMBER of UNITS of a good that individuals are willing and able to buy at a particular price.
Own Price
The price of a good.
Change in quantity demanded
A movement from one point to another point on the same demand curve caused by a change in the price of the good.
Change in demand
Shift in the demand curve.
Increase in demand
Rightward shift in the demand curve
Decrease in demand
Leftward shift in the demand curve.
Normal Good
A good for which demand rises as income rises.
Inferior Good
A good for which demand falls as income rises.
Neutral good
A good for which demand does not change as income rises or falls.
Substitutes
Two goods that satisfy similar needs or desires.
With substitutes, the demand for one rises as the price of the other rises.
Complements
Two goods that are used jointly in consumption.
With complements, the demand for one rises as the price of the other falls.
Movement factors
Factors that cause movement along curves.
Shift factors
Factors that actually shift the curves.
Supply
The willingness and ability of sellers to produce and offer to sell
different quantities of a good
at different prices
during a specific time period.
Law of Supply
As the price of a good rises, the quantity supplied of the good rises, ceteris paribus. (And Vice versa).
Supply curve
The graphical representation of the law of demand.
Why are most supply curves upward sloping
Law of diminishing marginal returns.
Supply Schedule
The numerical tabulation of the quantity supplied of a good at different prices.
A numerical representation of the law of supply.
Subsidy
A monetary payment by government to a producer of a good or service.
Surplus (Excess Supply)
A condition in which the quantity supplied is greater than the quantity demanded.
Only when can surpluses occur
At prices above equilibrium price.
Shortage (Excess Demand)
A condition in which the quantity demanded is greater than the quantity supplied.
Only when can shortages occur
At prices below equilibrium price.
Equilibrium Price
The price at which the quantity demanded of the good equals the quantity supplied.
Equilibrium Quantity
The quantity that corresponds to the equilibrium price.
The quantity at which the amount of the good that buyers are willing and able to buy equals the amount that sellers are willing and able to sell, and both equal the amount actually bought and sold.
Disequilibrium Price
A price other than equilibrium price.
A price at which the quantity demanded does not equal the quantity supplied.
Disequilibrium
A state of either surplus or shortage in a market.
Equilibrium
The price-quantity combination from which buyers or sellers do not tend to move away.
Graphically, equilibrium is the intersection point of the supply and demand curves.
Consumers’ Surplus (CS)
The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid.
Producers’ Surplus
The difference between the price sellers receive for a good and the minimum or lowest price for which they would’ve sold the good.
Total Surplus
The sum of consumers’ surplus and producers’ surplus.
