supply demand and equilibrium

Competitive Market

A market with many buyers and sellers where each has a negligible impact on price; buyers and sellers are price takers.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Law of Demand

States that, other things equal, the quantity demanded of a good falls when its price rises.

Demand Curve

Graphical representation of the relationship between quantity demanded and the price of a good.

Normal Good

A good for which demand increases as income increases.

Inferior Good

A good for which demand decreases as income increases, e.g., Ramen noodles.

Complements

Goods that are consumed together; an increase in the price of a complement decreases demand.

Substitutes

Goods that can replace each other; an increase in the price of a substitute decreases demand.

Quantity Supplied

The amount of a good that sellers are willing and able to supply.

Law of Supply

States that, other things equal, the quantity supplied of a good rises when its price rises.

Supply Curve

Graphical representation of the relationship between quantity supplied and the price of a good.

Equilibrium

A situation in which the price has reached the level where quantity supplied equals quantity demanded.

Comparative Statics

Refers to comparing the equilibrium price and quantity in two different situations.

Indeterminate Effect

Occurs when the effect on quantity is unclear due to simultaneous shifts in supply and demand.

Supply Shift

A change in the supply curve due to factors other than price.

Demand Shift

A change in the demand curve due to factors other than price.

Inverse Demand Curve

A demand curve expressed with price as a function of quantity.