Chapter 4: Supply and Demand (Vocabulary Flashcards)

Vocabulary flashcards covering key concepts from Chapter 4: Supply and Demand, including demand and supply laws, curves, shifts, equilibrium, and common applications.

Law of Demand

Quantity demanded is inversely related to price; as price falls, quantity demanded rises; as price rises, quantity demanded falls.

Quantity Demanded

A specific amount that will be demanded per unit of time at a given price, holding everything else constant; a point on the demand curve.

Demand Curve

Graphic representation of the relationship between price and quantity demanded; downward sloping.

Movement Along a Demand Curve

A change in price causes a movement along the demand curve, changing quantity demanded but not demand itself.

Shift in Demand

A change in any factor other than price that affects demand; causes the entire demand curve to shift.

Demand Shifters (Factors in Demand Shift)

Income, prices of other goods, tastes, expectations, taxes and subsidies.

Market Demand

Sum of all individual demand curves; the total quantity demanded at each price.

Demand Schedule vs Demand Curve

A demand schedule lists quantities demanded at various prices; a demand curve graphically represents that relationship.

Law of Supply

Quantity supplied is directly related to price; as price rises, quantity supplied rises; as price falls, quantity supplied falls.

Quantity Supplied

A specific amount that will be supplied per unit of time at a given price, holding everything else constant; a point on the supply curve.

Supply Curve

Graphic representation of the relationship between price and quantity supplied; upward sloping.

Movement Along a Supply Curve

A change in price causes movement along the supply curve, changing quantity supplied but not supply.

Shift in Supply

A change in any factor other than price that affects supply; causes the entire supply curve to shift.

Supply Shifters (Factors in Supply Shift)

Price of inputs, technology, expectations, taxes and subsidies.

Market Supply

Sum of all individual supply curves; the total quantity supplied at each price.

Equilibrium

A state where opposing forces of supply and demand balance; determines equilibrium price and quantity.

Equilibrium Price

The price toward which the market tends to move; the price at which quantity supplied equals quantity demanded.

Equilibrium Quantity

The amount bought and sold at the equilibrium price.

Surplus (Excess Supply)

Excess supply; quantity supplied exceeds quantity demanded; prices tend to fall to clear the market.

Shortage (Excess Demand)

Excess demand; quantity demanded exceeds quantity supplied; prices tend to rise to restore balance.

Shifts in Demand and Supply and Equilibrium

Shifts in either curve change equilibrium price; e.g., increase in demand or decrease in supply raises price, while decrease in demand or increase in supply lowers price.

Limitations of Demand/Supply Analysis

The ceteris paribus assumption may fail for large portions of the economy; fallacy of composition is assuming what is true for a part is true for the whole.

Application: Demand Shift (Lottery Income)

Winning $1 million increases income, shifting demand to the right (higher demand) for the affected good.

Application: Decrease in Supply

A decrease in supply creates excess demand at the original price, causing the price to rise to a new higher equilibrium.

Application: Decrease in Demand

A decrease in demand creates excess supply at the original price, causing the price to fall to a new lower equilibrium.