Supply & Demand Study Guide

Comprehensive vocabulary flashcards covering demand, supply, market equilibrium, market structures, price controls, and graph interpretations based on the Supply & Demand study guide.

Determinants of Demand

Factors other than price that cause the entire demand curve to shift, such as consumer income, tastes and preferences, prices of related goods, consumer expectations, and number of buyers.

Elasticity of Demand

A measure of how sensitive or responsive the quantity demanded of a good is to a change in its price.

Elastic Demand

A condition in which a given percentage change in price leads to a relatively larger percentage change in the quantity demanded.

Inelastic Demand

A condition in which a change in price produces relatively little or no change in the quantity demanded.

Complementary Goods

Goods that are frequently used and purchased together, such that an increase in the price of one decreases the demand for the other.

Substitute Goods

Goods that can be used in place of one another, such that an increase in the price of one increases the demand for the other.

Total Utility

The overall satisfaction or fulfillment a consumer derives from consuming a given total quantity of a good or service.

Marginal Utility

The additional satisfaction or benefit received from consuming one more unit of a good or service.

Diminishing Marginal Utility

The economic principle stating that as consumption of a product increases, the additional satisfaction gained from each successive unit decreases.

Law of Demand

The economic law stating that, all other factors remaining equal, as the price of a good increases, quantity demanded decreases, and as price decreases, quantity demanded increases.

Law of Supply

The economic principle stating that, all other factors remaining equal, producers will offer more of a good at higher prices and less at lower prices.

Change in Supply

A shift in the entire supply curve caused by factors other than the good's own price, changing the quantity supplied at every price level.

Change in Quantity Supplied

A movement along an existing supply curve resulting solely from a change in the price of the good.

Determinants of Supply

Non-price factors that shift the supply curve, including input prices, technology, taxes and subsidies, producer expectations, and the number of sellers.

Market Structure

The organizational characteristics of an industry or market, defined by firm quantity, degree of product differentiation, ease of entry, and pricing power.

Perfect Competition

A market structure characterized by many buyers and sellers, standardized identical products, free entry and exit, and individual firms acting as price takers.

Monopolistic Competition

A market structure featuring many competing firms selling differentiated products with relatively easy entry and exit.

Oligopoly

A market structure dominated by a small number of large, interdependent firms with high barriers to entry.

Cartel

A formal collusive agreement among competing producers to coordinate prices, restrict production, or allocate market shares.

Monopoly

A market structure where a single seller provides a unique product or service with no close substitutes and high barriers to entry.

Natural Monopoly

A monopoly that arises when a single firm can supply an entire market at a lower average cost than two or more firms could due to substantial economies of scale.

Geographic Monopoly

A monopoly created when a single seller has exclusive control over a local market because of geographic isolation or absence of nearby competitors.

Technological Monopoly

A monopoly based on the exclusive ownership or control of a specific scientific advance, technology, patent, or copyright.

Equilibrium Price

The market-clearing price at which the quantity demanded by buyers exactly equals the quantity supplied by sellers.

Shortage

A market condition occurring when the quantity demanded exceeds quantity supplied because the actual price is set below the equilibrium price.

Surplus

A market condition occurring when the quantity supplied exceeds quantity demanded because the actual price is set above the equilibrium price.

Price Floor

A legal minimum price set by government above the equilibrium price, resulting in a persistent surplus (e.g., minimum wage).

Price Ceiling

A legal maximum price set by government below the equilibrium price, resulting in a persistent shortage.

Figure 1: Movement Along the Demand Curve

Illustrates a change in quantity demanded for coffee where a price drop from $3$ to $2$ causes quantity demanded to rise from $12$ to $16$ cups (movement along the curve from point A to point B).

Figure 2: Shift in Demand

Illustrates a rightward shift of the entire demand curve from $D$ to $D2$, expanding the quantity demanded from $80$ to $115$ at a price of $12$ (point A to point B).

Figure 3: Movement Along the Supply Curve

Illustrates a change in quantity supplied where decreases in price from $P_1$ down to $P_5$ produce corresponding decreases in quantity supplied from $Q_1$ down to $Q_5$ along the curve.

Figure 4: Shift in Supply for Beer

Illustrates a leftward shift of the supply curve from $S_1$ to $S_2$, decreasing the quantity supplied at a price of $2$ from $Q_1$ down to $Q_2$.

Figure 5: Equilibrium Graph

Identifies the market equilibrium at a price of $50$ and a quantity of $400$, where prices above $50$ generate a surplus and prices below $50$ generate a shortage.

Price Controls: Points A and B

Identifies Point A as a price floor situated above equilibrium leading to a surplus, and Point B as a price ceiling situated below equilibrium leading to a shortage.