Unit 2 - Supply, demand, and market equilibrium - Khan Academy

PES

measures how sensitive are sellers to price changes on goods.

Substitution effect

as the price of a good increases, consumers substitute the good with another that is cheaper.

License

gives an owner the right to supply a good /service.

Deadweight loss

transactions that should occur, but dont because of government intervention (calculate the area= triangle formula, ½ (base x height)

Quota

upper limit of a quantity that can be bought or sold (known as quantity control)

Subsidies

are the opposite of taxes and help reduce price per unit.

Inferior good

increase in demand when consumers income decreases

Equilibrium

QS=QD in a market setting, an equilibrium occurs when price has adjusted until quantity supplied is equal to quantity demanded

Substitutes

good /service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex.

Complements

goods /services that are consumed together (ex.

inverse impact

The cost of production (land, labor, capital) has a(n) ________ on the supply.

large portion

Flat, quantity is sensitive to price change, substitutes, luxury items, ________ of income, not needed immediately.

Elasticity

how much the Q is affected by P.

Tariffs

tax placed on a good that is imported or exported.

Quota rent

difference between demand price and supply price.

Negative

= compliments (inferior good)

positive

= substitutes (normal good)

Shortage

Qs

Double shift

either price or quantity will be unknown.

Taxes

are added up to the unit cost of production, thus making it more expensive.

Elastic demand

means that the goods are subject to be affected by a change in price.

Inelastic demand

TR correlates direct with price.

Normal good

a good for which demand will increase when buyers’ incomes increase.

market supply

The ________ shows the quantity a supplier is willing and able to offer at various prices at a given time.

Elastic demand

TR correlates inversely with price.

Inelastic demand

means that goods are not subject to be affected by a change in price.

Demand

all of the quantities of a good or service that buyers would be willing and able to buy at all possible prices; demand is represented graphically as the entire demand curve.

Law of Demand

As price increases, QT demand decreases, and as price decreases, QT demand increases

Substitutes

good/service that can be used in place of another, when price of one increases, consumers will buy more of the other (ex

Substitution effect

as the price of a good increases, consumers substitute the good with another that is cheaper

Complements

goods/services that are consumed together (ex

Income effect

as income increases, people will buy more of normal goods, and less of inferior goods

Normal good

increase in demand when consumers income increases (ex

Inferior good

a good for which demand will decrease when buyers’ incomes increase.

Diminishing marginal utility

As more units of a product are consumed, the satisfaction/utility it provides tends to decline

Supply

different quantities of goods/services which sellers are willing and able to produce at a given price

Law of supply

as price increases, quantity supplied also increases, this is a direct relation

Inelastic demand

TR correlates direct with price

Elasticity

how much the Q is affected by P

PES

measures how sensitive are sellers to price changes on goods

Inelastic

 unable to respond to price change

Equilibrium

occurs when no one is better off doing something else

Producer surplus

actual price -price the producer is willing to sell for

Demand increase

price and quantity increase

Demand decrease

price and quantity decrease

Supply increase

price decreases, quantity increases

Supply decrease

 price increases, quantity decreases

Double shift

either price or quantity will be unknown

Deadweight loss (DWL)

transactions that should occur, but dont because of government intervention (calculate the area = triangle formula, ½(base x height)

Price floor

minimum price a supplier can charge, price is set above equilibrium (causes shortage)

Price ceiling

maximum price a supplier can charge, price is set below equilibrium (causes surplus)

Quota

upper limit of a quantity that can be bought or sold (known as quantity control)

License

gives an owner the right to supply a good/service

Demand price

the price at which consumers will demand that quantity

Supply price

the price at which producers will supply that quantity

Quota rent

difference between demand price and supply price

Tariffs

tax placed on a good that is imported or exported

Import quota

restriction on the quantity of a good that can be imported

TONIE 

(T-tastes, O-other goods, N-number of buyers, I-income, E-expectations)

quantity demanded

the specific amount that buyers are willing to purchase at a given price; each point on a demand curve is associated with a specific quantity demanded.

change in quantity demanded

a movement along a demand curve caused by a change in price; a change in quantity demanded is a movement along the *same* curve

change in demand

when buyers are willing to buy a different quantity at all possible prices, which is represented graphically by a shift of the entire demand curve; this occurs due to a change in one of the determinants of demand.

determinants of demand

changes in conditions that cause the demand curve to shift; the mnemonic TONIE can help you remember the changes that can shift demand (T-tastes, O-other goods, N-number of buyers, I-income, E-expectations)

substitute goods

goods that can replace each other; when the price of a good increases, the demand for its substitute will increase.

complement goods

goods that tend to be consumed together; when the price of a good increases the demand for its complement will decrease.

demand schedule

a table describing all of the quantities of a good or service; the demand schedule is the data on price and quantities demanded that can be used to create a demand curve.

demand curve

a graph that plots out the demand schedule, which shows the relationship between price and quantity demanded

quantity supplied

the amount of a good or service that sellers are willing to sell at a specific price; quantity supplied is represented in a graphical model as a single point on a supply curve.

change in quantity supplied

a movement along a supply curve resulting from a change in a good’s price

change in supply

a movement or shift in an entire supply curve resulting from a change in one of the non-price determinants of supply

determinants of supply

changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a good’s production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, subsidies or taxes in a market, 5) the price of other goods sellers could produce, and 6) the expectations among producers of future prices. CTIGOE

CTIGOE

Competition, Technology, Input price (Cost), Government, Opportunity Cost, Expectations

market

an interaction of buyers and sellers where goods, services, or resources are exchanged

surplus

QS>QD

when the quantity supplied of a good, service, or resource is greater than the quantity demanded

disequilibrium

QS<>QD in a market setting, disequilibrium occurs when quantity supplied is not equal to the quantity demanded; when a market is experiencing a disequilibrium, there will be either a shortage or a surplus.

equilibrium price

the price in a market at which the quantity demanded and the quantity supplied of a good are equal to one another; this is also called the “market clearing price.”

equilibrium quantity

the quantity that will be sold and purchased at the equilibrium price