The Market at Work: Supply and Demand

Flashcards covering key vocabulary and concepts related to supply and demand, competitive markets, and market equilibrium.

Scarcity

Refers to the limited nature of society's resources.

Production Possibilities Frontier (PPF)

An illustration of the goods and services an economy is capable of producing.

Market

A place where buyers and sellers meet, which doesn't have to be a physical place.

Firms

Entities that supply goods or services in a market.

Consumers

Individuals who purchase goods supplied by firms.

Competitive Market

A market characterized by many buyers and sellers, similar goods, and no individual influence over price.

Market Economy

An economy where resources are allocated among households and firms with little or no government interference.

Invisible Hand

The concept that self-interest guides resources to their highest-valued uses in a market economy, pushing the market toward the best outcome.

Imperfect Market

A market where a buyer or seller has an influence on the price.

Market Power

A firm's ability to influence price.

Monopoly

A single company that supplies the entire market for a good or service.

Quantity Demanded

The amount of a good buyers are willing and able to produce at the current price.

Law of Demand

All else equal, there is an inverse relationship between price and quantity demanded (if price increases, quantity demanded decreases; if price decreases, quantity demanded increases).

Demand Schedule

A table showing the relationship between price and quantity demanded.

Demand Curve

A graph of the relationship between price and quantity demanded.

Market Demand

The horizontal sum of all individual quantities demanded by each buyer in the market at each price.

Change in Quantity Demanded

A movement along a demand curve, caused by a change in the price of the good.

Change in Demand

A shift of the entire demand curve to the left or right, caused by changes in nonprice factors.

Normal Good

A good we buy more of when we get more income.

Inferior Good

A good we buy less of when we get more income.

Complements

Two goods used together.

Substitutes

Goods that can be used in place of each other.

Quantity Supplied

The amount of the good or service that producers are willing and able to sell at the current price.

Law of Supply

All else equal, there is a direct relationship between price and quantity supplied (if price decreases, quantity supplied decreases; if price increases, quantity supplied increases).

Supply Schedule

A table showing the relationship between price and quantity supplied.

Supply Curve

A graph of the relationship between price and quantity supplied.

Market Supply

The horizontal sum of all individual quantities supplied by each seller in the market at each price.

Change in Quantity Supplied

A movement along a supply curve, caused by a change in the price of the good.

Change in Supply

A shift of the entire supply curve to the left or right, caused by a change in nonprice factors.

Inputs

Resources used in the production process.

Technology

Knowledge that producers have about how to produce a product.

Tax (producer)

An added cost of production paid by a producer, which can reduce supply.

Subsidy (producer)

Government payments to sellers to produce goods, which reduces the cost of production and can increase supply.

Law of Supply and Demand

The market price of any good will adjust to bring the quantity supplied and quantity demanded into balance.

Equilibrium Price

The price at which quantity supplied is equal to quantity demanded, also known as the price that 'clears the market'.

Equilibrium Quantity

The quantity at which quantity demanded is equal to quantity supplied.

Shortage

Occurs when quantity demanded is greater than quantity supplied at a given price, leading to an increase in price toward equilibrium.

Surplus

Occurs when quantity supplied is greater than quantity demanded at a given price, leading to a decrease in price toward equilibrium.