Economics: Demand, Supply, and Market Equilibrium

Vocabulary flashcards covering core economics concepts including demand, supply, elasticity, production costs, equilibrium, and price controls.

Demand

The desire to own something and the ability to pay for it.

Law of Demand

Economic law stating that consumers will buy more of a good when its price is lower and less when its price is higher.

Substitution Effect

The reaction of consumers to an increase in a good's price by consuming less of that good and more of a substitute good.

Income Effect

The change in consumption that results when a price increase causes real income or purchasing power to decline.

Demand Schedule

A table that lists the quantity of a good that a person will purchase at various prices in a market.

Market Demand Schedule

A table that lists the quantities of a good demanded at various prices by all consumers in a given market.

Demand Curve

A graphic representation of a demand schedule plotting price against quantity demanded.

Ceteris Paribus

A Latin phrase meaning "all other things held constant".

Non-Price Determinants

Factors other than price—such as income, expectations, demographics, population, tastes, and prices of related goods—that shift the demand curve.

Normal Goods

Goods that consumers demand more of when their income increases.

Inferior Goods

Goods that consumers demand less of as their income increases.

Demographics

The statistical characteristics of human populations, such as age, race, gender, and income level.

Complements

Two goods that are bought and used together.

Substitutes

Goods that are used in place of one another.

Elasticity of Demand

A measure of how strongly consumers respond to a change in the price of a good.

Inelastic

Demand or supply that is relatively unresponsive to changes in price, having an elasticity value less than 1.

Elastic

Demand or supply that is very responsive to changes in price, having an elasticity value greater than 1.

Unitary Elastic

Elasticity of demand or supply that is exactly equal to 1, where percentage change in quantity equals percentage change in price.

Total Revenue

The total amount of money a firm receives by selling goods or services, calculated as price multiplied by quantity sold.

Supply

The amount of a good or service that is available for purchase.

Law of Supply

Economic law stating that producers offer more of a good as its price increases and less as its price falls.

Quantity Supplied

The amount that a supplier is willing and able to supply at a specific price.

Supply Schedule

A chart that lists how much of a good an individual supplier will offer at different prices.

Market Supply Schedule

A chart that lists how much of a good all suppliers in a market will offer at different prices.

Supply Curve

A graph showing the quantity supplied of a good at different prices.

Elasticity of Supply

A measure of the way quantity supplied reacts to a change in price.

Marginal Product of Labor

The change in output that results from adding one additional unit of labor.

Increasing Marginal Returns

A level of production in which the marginal product of labor increases as the number of workers increases.

Diminishing Marginal Returns

A level of production in which the marginal product of labor decreases as the number of workers increases.

Negative Marginal Return

A level of production where adding an additional worker causes total output to decrease.

Fixed Cost

A cost that does not change, no matter how much of a good is produced.

Variable Cost

A cost that rises or falls depending on the quantity of a good produced.

Total Cost

The sum of fixed costs and variable costs.

Marginal Cost

The cost of producing one additional unit of a good.

Marginal Revenue

The additional income received from selling one additional unit of a good.

Average Cost

The total cost divided by the total quantity produced.

Operating Cost

The cost of operating a facility, such as a factory or store.

Subsidy

A government payment that supports a business or market.

Excise Tax

A tax placed on the production or sale of a specific good.

Regulation

Government intervention in a market that affects the price, quantity, or quality of a good.

Equilibrium

The point at which quantity demanded equals quantity supplied in a market.

Disequilibrium

Any price or quantity at which quantity supplied is not equal to quantity demanded in a market.

Shortage

A situation in which quantity demanded is greater than quantity supplied, creating excess demand.

Surplus

A situation in which quantity supplied is greater than quantity demanded, creating excess supply.

Price Ceiling

A maximum legal price that can be charged for a good or service.

Rent Control

A price ceiling placed on apartment rent to limit price increases.

Price Floor

A minimum legal price that must be paid for a good or service.

Minimum Wage

A price floor setting the minimum price an employer can pay a worker for an hour of labor.

Inventory

The quantity of goods that a firm has on hand.

Search Costs

The financial and opportunity costs consumers pay when searching for a good or service.

Barter

The direct trading of one set of goods or services for another without using money.

Supply Shock

A sudden shortage of a good.

Rationing

A system of allocating scarce goods and services using criteria other than price.

Black Market

A market in which goods are sold illegally, without regard for government controls on price or quantity.