Supply, Demand, and Elasticity Flashcards

Vocabulary flashcards covering core concepts of market mechanisms, supply, demand, equilibrium, and elasticity from Lecture 2.

Market

A set of buyers and sellers of a particular good or service.

Competitive Market

A market in which there are many buyers and many sellers, such that no single agent controls the market price.

Quantity Demanded

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

Law of Demand

The principle that, all other factors held constant, when the price of a good increases, the quantity demanded tends to decrease.

Ceteris Paribus

A Latin principle meaning 'all other factors held constant', used to describe the price-quantity relationship along a curve.

Market Demand

The sum of the quantities demanded by all buyers in a market at a given price.

Quantity Supplied

The amount of a good that sellers are willing and able to sell at a given price.

Law of Supply

The principle that, all other factors held constant, when the price of a good increases, the quantity supplied tends to increase.

Equilibrium

A market situation in which the quantity demanded is equal to the quantity supplied.

Equilibrium Price

The specific price that equates the quantity supplied with the quantity demanded in a market.

Equilibrium Quantity

The quantity of a good transacted at the equilibrium price.

Excess Supply

A market condition occurring when the price is above the equilibrium price, causing sellers to want to sell more than buyers wish to buy.

Excess Demand

A market condition occurring when the price is below the equilibrium price, causing buyers to want to buy more than sellers wish to sell.

Elasticity

A measure of the sensitivity or responsiveness of one variable to a change in another variable.

Price Elasticity of Demand

A measure of how much the quantity demanded responds to a percentage change in price, calculated as $\text{Ed} = \frac{\% \Delta Qd}{\% \Delta P}$.

Elastic Demand

A condition where the absolute value of price elasticity of demand is greater than 1 ($|\text{Ed}| > 1$), indicating that quantity demanded responds more than proportionally to a change in price.

Inelastic Demand

A condition where the absolute value of price elasticity of demand is less than 1 ($|\text{Ed}| < 1$), indicating that quantity demanded responds less than proportionally to a change in price.

Price Elasticity of Supply

A measure of how much the quantity supplied responds to a percentage change in price, calculated as $\text{Eo} = \frac{\% \Delta Qo}{\% \Delta P}$.

Income Elasticity of Demand

A measure of the responsiveness of demand to changes in consumer income, used to distinguish between normal and inferior goods.

Cross-Price Elasticity of Demand

A measure of the response of demand for one good to changes in the price of another good, used to identify substitutes and complements.

Total Revenue

The total monetary amount calculated as price multiplied by quantity, expressed as $\text{RT} = P \times Q$.