Unit 8: Supply and Demand

These flashcards cover key concepts related to supply and demand and competitive equilibrium as discussed in the lecture notes.

Competitive Equilibrium

A state where the market price reflects both supply and demand, and there is no tendency for change in the price or quantity.

Willingness to Pay (WTP)

The maximum amount of money a consumer is willing to pay for a good.

Willingness to Accept (WTA)

The minimum amount of money a seller is willing to accept for a good, also referred to as the seller’s reservation price.

Excess Demand

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

Excess Supply

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

Market Power

The ability of a firm to influence the price of a product or service by controlling supply, demand, or both.

Pareto Efficiency

An allocation of resources where it is impossible to make any individual better off without making someone else worse off.

Law of One Price

The economic theory that in an efficient market, all identical goods must have only one price.

Short-run vs Long-run

In the short-run, production capacity is fixed, while in the long-run, firms can change their production capacity and market dynamics.

Perfect Competition

A market structure characterized by many buyers and sellers, identical goods, and the assumption that all participants are price-takers.