Economics: Demand, Supply, and Market Equilibrium

Ceteris paribus

Other things being equal.

Complements

Goods used together, so consumption of one enhances consumption of the other.

Consumer surplus

Extra benefit received: what individuals are willing to pay minus what they actually paid.

Deadweight loss

The loss in social surplus when a market produces an inefficient quantity.

Demand

The relationship between price and the quantity demanded of a good or service.

Demand curve

Graphic representation of the relationship between price (vertical axis) and quantity demanded (horizontal axis).

Demand schedule

A table showing a range of prices and the quantity demanded at each price.

Economic surplus

See social surplus.

Equilibrium

Situation where quantity demanded equals quantity supplied, with no pressure to change.

Equilibrium price

The price where quantity demanded is equal to quantity supplied.

Equilibrium quantity

The quantity where quantity demanded and quantity supplied are equal for a price level.

Excess demand

At existing price, quantity demanded exceeds quantity supplied; also called a shortage.

Excess supply

At existing price, quantity supplied exceeds quantity demanded; also called a surplus.

Factors of production

Resources like labor, materials, and machinery used to produce goods; also called inputs.

Inferior good

A good in which quantity demanded falls as income rises, and rises as income falls.

Inputs

Resources like labor, materials, and machinery used to produce goods; also called factors of production.

Law of demand

Relationship where higher price leads to lower quantity demanded, while other variables are constant.

Law of supply

Relationship where higher price leads to greater quantity supplied, while other variables are constant.

Normal good

A good in which quantity demanded rises as income rises, and falls as income falls.

Price

What a buyer pays for a unit of a specific good or service.

Price ceiling

A legal maximum price.

Price control

Government laws to regulate prices instead of letting market forces determine them.

Price floor

A legal minimum price.

Producer surplus

Extra benefit received: price received minus the price the producer would have accepted.

Quantity demanded

Total number of units consumers are willing to purchase at a given price.

Quantity supplied

Total number of units producers are willing to sell at a given price.

Shift in demand

When an economic factor (not price) causes a different quantity demanded at every price.

Shift in supply

When an economic factor (not price) causes a different quantity supplied at every price.

Social surplus

The sum of consumer surplus and producer surplus.

Substitute

A good that can replace another, so greater consumption of one means less of the other.

Supply

The relationship between price and the quantity supplied of a good or service.

Supply curve

Line showing relationship between price (vertical axis) and quantity supplied (horizontal axis) on a graph.

Supply schedule

A table showing a range of prices and the quantity supplied at each price.

Surplus

At existing price, quantity supplied exceeds quantity demanded; also called excess supply.

Total surplus

See social surplus.