Economics: Demand and Supply Lecture Flashcards

This flashcard set covers the fundamental concepts of demand and supply, including market equilibrium, determinants of shifts, and types of goods as presented in the lecture notes.

Demand curve

A representation of the relationship between the quantity of a product demanded and its price.

Determinants of demand

Factors such as changes in the expected future price of a product, the number of buyers, and the price of complementary or substitute products.

Inferior goods

Products for which purchases tend to decrease as the buyer's income increases.

Substitutes

Two goods where a fall in the price of one will decrease the demand for the other.

Complementary goods

Two goods where an increase in the price of one (e.g., gasoline) leads to a decrease in demand for the other (e.g., automobile tires).

Increase in supply

A rightward shift of the supply curve often caused by improved technology or a decrease in production costs.

Supply curve shift factors

Changes in resource costs, technological changes, or changes in the prices of other goods, but not a change in the price of the good itself.

Equilibrium price and quantity

The market point where quantity demanded equals quantity supplied; for example, $\$1.50$ and $30\,\text{million gallons}$ of milk or $\$25$ and $1200\,\text{units}$.

Surplus

A condition where the quantity supplied is greater than the quantity demanded, which occurs when the market price is above the equilibrium price.

Shortage

A condition where the quantity demanded is greater than the quantity supplied at a specific price.

Effects of decreased supply

When demand is held constant, this leads to higher prices and a smaller quantity sold.

Other things are equal (Ceteris Paribus)

The assumption upon which the demand curve and its inverse relationship between price and quantity demanded is based.

Law of supply

The concept that, all else equal, price and quantity supplied are positively related.