Market Dynamics and Elasticities

Vocabulary flashcards based on key concepts related to market dynamics and elasticities.

Demand

The number of goods/services customers are willing to buy at a given price.

Effective Demand

Occurs when customers are willing and able to buy a product at a given price.

Price Elasticity of Demand (PED)

Measures how responsive the quantity demanded is to a change in price.

Inverse Relationship

As price increases, quantity demanded decreases; as price decreases, quantity demanded increases.

Demand Curve

Graphical representation showing the relationship between price and quantity demanded.

Non-price Factors Affecting Demand

Various factors other than price that can shift the demand curve left or right.

Supply

The number of goods/services that businesses are willing to sell at a given price in a specific time period.

Direct Relationship

As price increases, quantity supplied increases; as price decreases, quantity supplied decreases.

Supply Curve

Graphical representation showing the relationship between price and quantity supplied.

Market Equilibrium

The point at which quantity demanded equals quantity supplied.

Income Elasticity of Demand (YED)

Measures how responsive the quantity demanded is to a change in income.

Price Elastic Demand

When the percentage change in quantity demanded is greater than the percentage change in price (PED > 1).

Price Inelastic Demand

When the percentage change in quantity demanded is less than the percentage change in price (PED < 1).

Inferior Goods

Goods for which demand increases as consumer income falls.

Luxury Goods

Goods for which demand increases as consumer income rises.

Necessity Goods

Goods for which demand remains relatively stable regardless of changes in income.

Dynamic Market Changes

Changes in market conditions caused by shifts in demand and supply.

Surplus

Occurs when supply exceeds demand at a given price.

Shortage

Occurs when demand exceeds supply at a given price.