Supply & Demand Study Guide

Vocabulary practice flashcards covering fundamental concepts, market structures, price controls, and graphical analyses from the Supply & Demand Study Guide.

Law of Demand

An economic rule stating that the quantity demanded of a good or service varies inversely with its price, meaning that consumers will buy more at lower prices and less at higher prices, all else being equal.

Change in Quantity Demanded

A movement from one point to another along an existing demand curve caused exclusively by a change in the price of the good itself, as shown in the movement from Point A to Point B.

Shift in Demand

A complete shift of the demand curve to the left or right resulting from a change in an underlying determinant of demand, altering the quantity demanded at every price.

Determinants of Demand

Factors other than the product's own price that can cause the entire demand curve to increase or decrease, such as consumer income, preferences, expectations, and the prices of related goods.

Substitute Goods

Goods that can be used in place of one another, where an increase in the price of one good leads to an increase in the demand for the alternative good.

Complementary Goods

Goods that are typically purchased and used together, where an increase in the price of one good causes a decrease in the demand for the related good.

Elasticity of Demand

A measure of the responsiveness or sensitivity of the quantity demanded of a good to a change in its price.

Elastic

A type of demand where a given percentage change in price leads to a relatively larger percentage change in the quantity demanded.

Inelastic

A type of demand where a given percentage change in price leads to a relatively smaller percentage change in the quantity demanded.

Marginal Utility

The extra satisfaction or usefulness a consumer gains from obtaining or consuming one additional unit of a product.

Diminishing Marginal Utility

The economic principle stating that as an individual consumes more units of a specific good or service, the additional satisfaction derived from each subsequent unit decreases.

Law of Supply

The economic principle stating that suppliers will normally offer more of a good or service for sale at higher prices and less at lower prices.

Change in Quantity Supplied

A movement along a fixed supply curve caused solely by a change in the price of the good itself, moving between points along the curve.

Change in Supply

A shift of the entire supply curve to a new position, caused by non-price factors that alter the quantities offered for sale at every price level.

Determinants of Supply

Underlying conditions other than the good's own price that cause the entire supply curve to shift, including input costs, technology, taxes, subsidies, and producer expectations.

Market Structure

The organizational framework and competitive environment of a market, categorized by factors like the number of firms, product differentiation, and barriers to entry.

Perfect Competition

A market structure characterized by a very large number of buyers and sellers, identical products, and freedom of entry and exit, making each firm a price taker.

Monopolistic Competition

A market structure where many sellers produce similar but slightly differentiated products, giving each firm limited control over its prices.

Oligopoly

A market structure in which a few large sellers dominate the industry and are interdependent in their pricing and output decisions.

Cartel

A formal organization of producers who agree to coordinate prices and production quotas to act jointly like a monopoly.

Monopoly

A market structure with only one seller of a particular product that has no close substitutes, giving the firm substantial control over price.

Natural Monopoly

A market situation where costs are minimized by having a single firm produce the product, typically due to significant economies of scale.

Geographic Monopoly

A monopoly based on the absence of other sellers in a particular geographic area.

Technological Monopoly

A monopoly based on ownership or control of a manufacturing method, process, invention, or other scientific advance.

Equilibrium Price

The price where the quantity demanded by consumers precisely equals the quantity supplied by producers, clearing the market with no shortage or surplus.

Shortage

A situation where quantity demanded is greater than quantity supplied at the prevailing price, typically occurring when the price is below equilibrium.

Surplus

A situation where quantity supplied is greater than quantity demanded at the prevailing price, typically occurring when the price is above equilibrium.

Price Floor

A legal minimum price set above the market equilibrium price, preventing prices from falling further and leading to a market surplus.

Price Ceiling

A legal maximum price set below the market equilibrium price, preventing prices from rising further and leading to a market shortage.