Economics: Demand, Supply, and Market Equilibrium Concepts

Demand

The desire to own something and the ability to pay for it.

Law of Demand

Consumers will buy more of a good when its price is lower and less when its price is higher.

Quantity Demanded

The specific amount of a good or service that consumers are willing and able to buy at a particular price.

Substitution Effect

When a consumer reacts to a rise in the price of one good by consuming less of that good and more of a substitute good.

Income Effect

The change in consumption that results in response to changes in price.

Demand Schedule

A table that lists the quantity of a good that a person will purchase at various prices in a market.

Market Demand Schedule

A table that lists the quantities demanded of a good at various prices by all consumers in the market.

Demand Curve

A graphic representation of a demand schedule.

Ceteris Paribus

A Latin phrase that means 'all other things held constant.'

Non-Price Determinants

Factors other than price that can affect demand for a particular good or service.

Normal Good

A good that consumers demand more of when their incomes increase.

Inferior Good

A good that consumers demand less of when their incomes increase.

Demographics

The statistical characteristics of populations and population segments, especially when used to identify consumer markets.

Complements

Two goods that are bought and used together.

Substitutes

Goods that are used in place of one another.

Elasticity of Demand

A measure of the way quantity demanded reacts to a change in price.

Inelastic

Describes demand that is not very sensitive to price changes.

Elastic

Describes demand that is very sensitive to a change in price.

Unitary Elastic

Describes demand whose elasticity is exactly equal to one.

Total Revenue

The total amount of money a company receives by selling goods or services.

Supply

The amount of a good or service that is available.

Law of Supply

Producers offer more of a good or service as its price increases and less as its price falls.

Quantity Supplied

The amount of a good or service that a producer is willing and able to supply at a specific price.

Supply Schedule

A chart that lists how much of a good or service a supplier will offer at various prices.

Variable

A factor that can change.

Market Supply Schedule

A chart that lists how much of a good or service all suppliers will offer at various prices.

Supply Curve

A graph of the quantity supplied of a good or service at various prices.

Market Supply Curve

A graph of the total quantity supplied of a good or service by all suppliers at various prices.

Elasticity of Supply

A measure of the way quantity supplied reacts to a change in price.

Marginal Product of Labor

The change in output that results from hiring one additional unit of labor.

Increasing Marginal Returns

The level of production in which the marginal product of labor increases as the number of workers increases.

Diminishing Marginal Returns

The level of production at which the marginal product of labor decreases as the number of workers increases.

Negative Marginal Return

When the addition of a unit of labor actually reduces total output.

Fixed Cost

A cost that does not change, no matter how much of a good or service is produced.

Variable Costs

A cost that rises or falls depending on the quantity produced.

Total Cost

The sum of fixed costs and variable costs.

Marginal Cost

The extra cost of adding one unit.

Marginal Revenue

The additional income from selling one more unit of a good or service; sometimes equal to price.

Average Cost

Total cost divided by quantity produced.

Operating Cost

The cost of operating a facility, such as a factory or a store.

Subsidy

A government payment that supports a business or market.

Excise Tax

A tax on the production or sale of a good.

Regulation

Government intervention in a market that affects the production of a good.

Equilibrium

The point at which the demand for a product or service is equal to the supply of that product or service.

Disequilibrium

Any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market.

Shortage

A situation in which consumers want more of a good or service than producers are willing to make available at a particular price.

Surplus

A situation in which quantity supplied is greater than quantity demanded.

Price Ceiling

A maximum price that can legally be charged for a good or service.

Rent Control

A price ceiling placed on apartment rent.

Price Floor

A minimum price for a good or service.

Minimum Wage

A minimum price that an employer can pay a worker for an hour of labor.

Inventory

The quantity of goods that a firm has on hand.

Search Cost

The financial and opportunity cost that consumers pay when searching for a good or service.

Barter

The direct exchange of one set of goods or services for another.

Supply Shock

A sudden shortage of a good.

Rationing

A system of allocating scarce goods and services using criteria other than price.

Black Market

A market in which goods are sold illegally, without regard for government control on price or quantity.