Demand, Supply and Equilibrium – Key Vocabulary

A comprehensive set of vocabulary flashcards covering the core concepts, laws, determinants, and efficiency measures discussed in the Week 2 lecture on Demand, Supply, and Market Equilibrium.

Quantity Demanded

The amount of a good or service a consumer is willing and able to buy at a given price.

Demand Curve

A graphical representation showing the relationship between a good’s price and the quantity demanded.

Law of Demand

Ceteris paribus, quantity demanded falls when the price of a good rises, and rises when the price falls.

Substitution Effect

Change in quantity demanded caused by a good becoming more or less expensive relative to substitute goods.

Income Effect

Change in quantity demanded resulting from the impact of a price change on consumers’ purchasing power.

Inferior Good

A good for which demand decreases as consumer income rises (and vice-versa).

Normal Good

A good for which demand increases when consumer income rises.

Individual Demand

The demand for a good or service by a single consumer.

Market Demand

The horizontal sum of all individual demand curves for a good or service.

Ceteris Paribus

Latin for “other things being equal,” used to isolate the effect of one variable by holding others constant.

Determinants of Demand

Factors that shift the demand curve: prices of related goods, income, tastes, expected future prices, population & demographics.

Substitutes (Goods)

Goods that can be used in place of one another; an increase in the price of one raises demand for the other.

Complements

Goods that are used together; an increase in the price of one lowers demand for the other.

Change in Demand

A shift of the entire demand curve caused by a determinant other than the good’s own price.

Change in Quantity Demanded

A movement along a demand curve caused solely by a change in the good’s own price.

Quantity Supplied

The amount of a good or service a firm is willing and able to sell at a given price.

Supply Curve

A graphical representation showing the relationship between a good’s price and the quantity supplied.

Law of Supply

Ceteris paribus, quantity supplied rises when the price of a good rises, and falls when the price falls.

Determinants of Supply

Factors that shift the supply curve: prices of inputs, technological change, number of firms, substitutes in production, expected future prices.

Price of Inputs

Cost of resources used to produce a good; higher input prices shift supply left (decrease supply).

Technological Change

Improvements that raise productivity, shifting the supply curve right (increase supply).

Number of Firms

More firms in a market increase total supply, shifting the supply curve right.

Substitutes in Production

Alternative products a firm can make with the same resources; a higher price for one shifts supply of the other left.

Expected Future Price (Demand)

If consumers expect higher future prices, current demand shifts right.

Expected Future Price (Supply)

If producers expect higher future prices, current supply shifts left as they withhold output.

Change in Supply

A shift of the entire supply curve caused by a determinant other than the good’s own price.

Change in Quantity Supplied

A movement along a supply curve resulting solely from a change in the good’s own price.

Market Equilibrium

The price and quantity at which quantity demanded equals quantity supplied.

Competitive Market Equilibrium

Equilibrium in a market with many buyers and sellers, none able to influence price individually.

Surplus

A situation where quantity supplied exceeds quantity demanded at a given price.

Shortage

A situation where quantity demanded exceeds quantity supplied at a given price.

Consumer Surplus

The difference between the highest price consumers are willing to pay and the price they actually pay.

Producer Surplus

The difference between the price producers actually receive and the lowest price they would accept.

Marginal Benefit

The additional benefit to a consumer from consuming one more unit, measured by willingness to pay.

Marginal Cost

The additional cost to a producer of making one more unit, represented by the supply curve’s height.

Total Economic Surplus

The sum of consumer surplus and producer surplus; measures total net benefit to society.

Deadweight Loss

The reduction in total economic surplus when a market is not in competitive equilibrium.

Efficient Market Outcome

A competitive equilibrium that maximises total surplus and allocates resources to their highest-valued use.

Shift of Demand Curve

Any change in demand determinants that causes the entire demand curve to move right or left.

Shift of Supply Curve

Any change in supply determinants that causes the entire supply curve to move right or left.

Profit Motive

The incentive for firms to increase output when prices rise to earn higher profits.

Increasing Marginal Cost

Rising production costs as output expands, necessitating higher prices for additional units.

New Entry

Arrival or return of firms to a market when higher prices make production profitable, increasing total supply