Microeconomics: Supply and Demand

Flashcards covering key vocabulary terms from the Microeconomics lecture on Supply and Demand, including definitions for demand, supply, equilibrium, and market forces.

Determinants of Demand

Factors influencing how much of a good or service consumers buy, including tastes, information, prices of other goods, income, and government rules.

Quantity demanded

The amount of a good that consumers are willing to buy at a given price, holding constant other factors that influence purchases.

Demand curve

A graphical representation showing the quantity demanded at each possible price, holding constant other factors that influence purchases.

Law of Demand

Consumers demand more of a good the lower its price, holding constant other factors that influence the amount they consume.

Substitute

A good or service that may be consumed instead of another good or service.

Complement

A good or service that is jointly consumed with another good or service.

Movement along a demand curve

A change in the quantity demanded caused by a change in the price of the good itself.

Shift of a demand curve

A change in demand caused by a change in any factor other than a good’s price.

Summing Demand Curves

The process of adding up the quantities each consumer demands at a given price to find the total quantity demanded at that price.

Determinants of Supply

Factors influencing how much of a good or service firms supply, including the price of that good, costs of production, and government rules and regulations.

Quantity supplied

The amount of a good that firms want to sell at a given price, holding constant other factors that influence firms supply decisions.

Supply curve

A graphical representation showing the quantity supplied at each possible price, holding constant the other factors that influence firms supply decisions.

Summing Supply Curves

The process of adding up the quantities produced by all suppliers at each possible price to find the total supply curve (horizontal sum).

Equilibrium

A situation in the market where no one wants to change his or her behavior; quantity demanded equals quantity supplied.

Equilibrium price

The price at which consumers can buy as much as they want, and sellers can sell as much as they want, with no excess demand or supply.

Equilibrium quantity

The amount that consumers buy, and suppliers sell, at the equilibrium price.

Disequilibrium

A market situation where the quantity demanded is not equal to the quantity supplied.

Excess demand

The amount by which the quantity demanded exceeds the quantity supplied at a specified price, also known as a shortage.

Excess supply

The amount by which the quantity supplied is greater than the quantity demanded at a specified price, also known as a surplus.

Shocking the Equilibrium

A change in market equilibrium caused by a shift in the demand curve or the supply curve due to a change in one of the factors previously held constant.

Government Interventions

Policies or actions by the government that can shift supply or demand curves, or cause the quantity demanded to differ from the quantity supplied.

Price ceiling

A government-imposed maximum legal price that sellers can charge for a good or service.

Price floor

A government-imposed minimum legal price that sellers can charge for a good or service.

Minimum wage

A type of price floor applied to the labor market, setting the lowest legal hourly wage an employer can pay workers.

Perfectly Competitive Markets

Markets characterized by all participants being price takers, firms selling identical products, full information about prices and quality, and low costs of trading.