Demand and Supply Overview

Flashcards focusing on key concepts in the Demand and Supply chapter from the lecture notes.

Competitive Market

A market where many buyers and sellers interact, leading to price determination based on supply and demand.

Law of Demand

States that, all else being equal, as the price of a good rises, the quantity demanded falls and vice versa.

Substitution Effect

The phenomenon where consumers replace a more expensive good with a less expensive alternative when prices rise.

Income Effect

The change in quantity demanded due to a change in consumer income, impacting their purchasing power.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded.

Change in Demand

A shift in the demand curve caused by factors other than price, such as income or consumer preferences.

Normal Good

A good for which demand increases when consumer income rises.

Inferior Good

A good for which demand decreases as consumer income increases.

Supply

The total amount of a good or service that producers are willing and able to sell at a given price.

Law of Supply

States that, all else being equal, as the price of a good rises, the quantity supplied rises and vice versa.

Market Equilibrium

A state in the market where the quantity demanded equals the quantity supplied.

Surplus

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Shortage

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied.