The Supply and Demand Model

These flashcards cover key concepts related to the supply and demand model, including definitions, laws, shifts in curves, and effects on equilibrium.

What is the definition of demand in economics?

Demand is a relationship between price and the quantity demanded.

What does a demand schedule represent?

A demand schedule is a tabular representation of demand showing the price and quantity demanded for a particular good, all else being equal.

What is the law of demand?

The law of demand states that the quantity demanded of a good declines as its price rises.

What is a demand curve?

A demand curve is a graph of demand showing the relationship between price and quantity demanded.

What are normal goods?

Normal goods are goods for which demand increases when the consumers’ income rises and decreases when income falls.

What are inferior goods?

Inferior goods are goods for which demand decreases when consumers’ income rises and increases when income falls.

List three factors that can cause a shift in the demand curve.

1. Consumers’ Preferences 2. Consumers’ Income 3. Prices of Closely Related Goods.

What is the definition of supply?

Supply is a relationship between price and the quantity supplied, all other things being equal.

Explain the law of supply.

The law of supply states that the quantity supplied of a good increases as its price rises.

What can cause the supply curve to shift?

Technological changes, weather conditions, prices of inputs used in production, and the number of firms in the market.

What is equilibrium price?

The equilibrium price is the price at which the quantity that sellers are willing to sell equals the quantity that consumers are willing to purchase.

What happens when there is a shortage in the market?

A shortage occurs when the quantity demanded is greater than the quantity supplied, often because the price is below the equilibrium price.

What is the effect of an increase in demand on equilibrium price and quantity?

An increase in demand will shift the demand curve to the right, resulting in a higher equilibrium price and quantity.

What is the result of a decrease in supply?

A decrease in supply will shift the supply curve to the left, resulting in a higher equilibrium price and a lower equilibrium quantity.