Economics Key Terms: Supply, Demand, and Market Equilibrium

Production Possibilities Curve

A graph showing the maximum combinations of two goods that can be produced with available resources and technology.

absolute advantage

A situation in which an individual, business, or country can produce more of a good or service than any other producer with the same quantity of resources.

capital

A factor of production consisting of tools, equipment, and infrastructure used to produce goods and services.

comparative advantage

The ability of a producer to create a good or service at a lower opportunity cost than another producer.

constant opportunity costs

A situation where the opportunity cost of producing one good remains the same regardless of the quantity produced, resulting in a linear PPC.

decreasing opportunity costs

A situation where the opportunity cost of producing one good decreases as more of that good is produced, resulting in a bowed-in PPC.

demand

The quantity of a good or service that consumers are willing and able to buy at various price levels.

demand curve

A graph showing the relationship between the price of a good and the quantity demanded, typically downward-sloping to reflect the law of demand.

determinants of demand

Factors that influence and cause changes in the quantity of a good or service that consumers are willing and able to buy at various price levels.

determinants of supply

Factors that influence the quantity of goods and services producers are willing and able to supply at various price levels.

disequilibrium

A market condition in which the quantity supplied does not equal the quantity demanded, causing imbalances that create surpluses or shortages.

equilibrium

A market condition in which the quantity supplied equals the quantity demanded at a particular price, with no tendency for change.

factors of production

The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

inefficiency

A situation where resources are not being used optimally, resulting in production below the maximum possible output.

mutually beneficial trade

An economic principle stating that there is an inverse relationship between the price of a good and the quantity demanded by consumers, all else being equal.

opportunity cost

The value of the next best alternative that must be given up when making a choice.

scarcity

The fundamental economic problem that resources are limited while wants and needs are unlimited.

supply

The quantity of a good or service that producers are willing and able to offer for sale at various price levels.

supply curve

A graph showing the relationship between the price of a good and the quantity supplied, typically upward-sloping to reflect the law of supply.

terms of trade

The ratio at which one good or service is exchanged for another; the price at which trade occurs between trading partners.

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