Consumer Economics: Supply and Demand Vocabulary (Lecture Notes)

Vocabulary flashcards covering key terms from the notes on supply and demand.

Price Mechanism

The system where the forces of demand and supply determine the prices of commodities and the changes therein.

Profit Motive

The underlying reason why a taxpayer or company participates in business activities of any kind.

Utility

An economic term referring to the total satisfaction received from consuming a good or service.

Law of Supply

An increase in price results in an increase in quantity supplied; there is a direct relationship between price and quantity.

Law of Demand

As the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

Determinants of Supply

Elements besides price which determine the available amount of a product or service; examples include price of raw materials, production costs, taxes and duties, subsidies and other factors relating to supply.

Determinants of Demand

When price changes, quantity demanded will change along the same demand curve; when factors other than price change, the demand curve will shift. Determinants include income, consumer preferences, number of buyers, price of related goods, substitute goods, complement goods, expectations about the future, future price, and future income.

Market Equilibrium

The state in which market supply and demand balance each other and, as a result, prices become stable.

Inelastic Supply or Demand

A situation in which the supply and demand for a good or service are relatively unaffected when the price changes (e.g., gasoline demand is not very sensitive to price increases).

Elastic Supply and Demand

A situation in which the supply and demand for a good or service can vary significantly in response to price changes.

Complementary Goods

Goods whose use is related to the use of an associated or paired good; two goods are complementary if using more of one increases the use of the other (e.g., printers and ink cartridges).

Substitute Goods

A product or service that satisfies the same need as another product or service; examples include fuel oil and natural gas, Gala apples vs Fuji apples.

Inferior Good

A good for which demand increases as income falls; example: city buses as a replacement for a car.