Chapter 3 - Supply And Demand: Theory Flashcards
Market
Any place people come together to trade
Demand
The willingness and ability of buyers to purchase different qualities of a good at different prices during a specific period.
Law of Demand
As the price of a good rises, the quantity demanded of the good falls, and is the price of a good falls, the quantity demanded of the good rises, ceteris paribus.
Demand schedule
The numerical 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
Over a given period, the marginal (or additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases.
Own Price
The price of a good.
Normal good
A good for which demand rises (Falls) as income rises (falls).
Inferior good
A good for which demand falls (rises) as income rises (falls).
Neutral good
A good for which demand does not change as income rises or falls.
Substitutes
Two goods that satisfy similar needs or desires.
Complements
Two goods that are used jointly and consumption.
Supply
The willingness and ability of sellers to produce an offer to sell different quantities of a good at different prices during a specific period. 
Law of supply
As the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus.
(Upward – sloping) supply curve
The graphical representation of the law of supply. 
Supply schedule
The numerical tabulation of the quantity supplied of a good at different prices. Supply schedule is the 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. Surpluses occur only at prices above the equilibrium price.
Shortage (excess demand)
A condition in which the quantity demanded is greater than the quantity supplied. Shortages occur only at prices below the equilibrium price.
Equilibrium price (Market – clearing price)
The price at which the quantity demanded of a good equals the quantity supplied.
Equilibrium quantity
The quantity that corresponds to the equilibrium price. The quantity at which the amount of the good the 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 the 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
Equilibrium means ‘at rest’. Equilibrium in a market is 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 (sellers) surplus (PS)
The difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good. (PS = price received - minimum selling price)
Total surplus (TS)
The sum of consumers surplus and producers surplus. (TS = CS + PS)
Spontaneous order
The spontaneous and unintended emergency of order out of the self interested actions of individuals; and unintended consequence of human action, with emphasis placed on the word “unintended “.
