Topic 2 - Demand, Supply and Market Equilibrium Flashcards
What is the definition of Supply?
Supply is the relationship between price and quantity supplied. It describes seller behaviour.
What is the definition of Quantity Supplied?
Quantity supplied is the amount of a good that a seller is willing and able to provide to a market at a given price.
What is the “Law of Supply”?
Other things being equal, the quantity supplied of a good rises as the price of that good increases.
What is a “Supply Schedule”?
A supply schedule is a table that shows the relationship between the price of a good and the quantity supplied.
What is a “Supply Curve”?
A supply curve is a graph that shows the relationship between the price of a good and the quantity supplied.
What is the definition of “Market Supply”?
The sum of all individual supplies for all sellers of a particular good or service.
IMPORTANT: Price is not added, only supply.
What is the “Change in Quantity Supplied”?
The change in quantity supplied describes movement along the supply curve. This is usually caused by a change in the price of the product.
The curve itself does not change.
What is “Change in Supply”?
A shift in the supply curve, either to the left or to the right, caused by a determinant other than the price.
E.G.: Input prices, technology, expectations, number of sellers…
What is “Equilibrium”?
Equilibrium refers to a situation in which supply and demand have been brought into balance.
What is the “Equilibrium Price”?
The equilibrium price is the price that balances the quantity supplied and quantity demanded. On a graph it is the price at which the supply and demand curves intersect.
What is the “Equilibrium Quantity”?
The equilibrium quantity is the quantity demanded and the quantity supplied at the equilibrium price. On a graph it is the price at which the supply and demand curves intersect.
What is “Excess Supply” or “Surplus”?
A situation in which the quantity which the sellers wish to sell exceeds that which the buyers wish to buy.
This should cause the price of the good to fall.
What is “Excess Demand” or “Shortage”?
A situation in which the quantity which the buyers wish to buy exceeds that which the sellers wish to sell.
This should cause the price of the good to rise.
Define the “Law of Supply and Demand”
The claim that the price of any good adjusts to bring the supply and demand for that good into balance.
Define “Comparative Statics”
The comparison of two different economic outcomes, before and after a change in some underlying exogenous parameter.
