Economics Review: Supply, Demand, Equilibrium, and Elasticity

Vocabulary flashcards covering market equilibrium, shifts versus movements along curves, the law of supply, shortage and surplus dynamics, and price elasticity calculations.

Shift in Demand

A shift of the entire demand curve to the left or right, representing a change in demand, as opposed to a movement along an existing curve.

Decrease in Quantity Demanded

A movement upward and to the left along a given demand curve, caused specifically by an increase in price.

Surplus

A market condition where quantity supplied exceeds quantity demanded ($\text{Qty}_S > \text{Qty}_D$), occurring when the current market price is higher than the equilibrium price, which causes price to decrease.

Law of Supply

The economic principle stating a positive relationship between price and quantity supplied; for example, when ketchup prices rise, sellers increase their quantity supplied of ketchup.

Supply Shift from Production Loss

An event that reduces the quantity of a good available for sale—such as the premature deaths of thousands of turkeys—which causes a leftward shift in the supply curve.

Conditions for an Increase in Equilibrium Price

Equilibrium price is guaranteed to increase when demand increases while supply is unchanged, when supply decreases while demand is unchanged, or when demand increases and supply decreases simultaneously.

Increase in Demand (Constant Supply)

A rightward shift in the demand curve while supply remains unchanged, resulting in an increase in both equilibrium price and equilibrium quantity.

Market Adjustment to a Shortage

The process where the law of supply and demand predicts that price will rise when a shortage exists, leading suppliers to increase quantity supplied and consumers to decrease quantity demanded until equilibrium is restored.

Midpoint Method for Elasticity of Demand

A formula to compute price elasticity using percentage changes relative to average price and quantity: $\frac{\Delta Q / \text{Avg} Q}{\Delta P / \text{Avg} P}$. For a price drop from $150$ to $100$ with quantity increasing from $70$ to $110$, the price elasticity of demand is $1.1$.

Price Inelastic Demand (Total Revenue Relation)

A condition where demand is unresponsive enough to price changes such that an increase in price leads to an increase in total revenue (elasticity value $< 1$).