Supply and Demand Econ Vocab

market

a group of buyers and sellers of a particular product

competitive market

one with many buyers and sellers, each has a negligible effect on price

in a perfectly competitive market:

• all goods exactly the same

• buyers and sellers so numerous that no one can affect market price - each is a price taker

quantity demanded

the amount of the good that buyers are willing and able to purchase

law of demand

the claim that the quantity demanded of a good falls when the price of the good rises, other things equal

Which way do demand curves slope?

demand curves slope down

How does income for a normal good affect a demand curve shift?

demand for a normal good rises when income rises

How does income for a inferior good affect a demand curve shift?

demand for an inferior good falls when income rises

What is a substitute?

two goods are substitutes if an increase in the price of one causes an increase in demand for the other

What is a compliment?

Two goods are complements if an increase in the price of one causes a fall in demand for the other

quantity supplied

the quantity supplied of any good is the amount that sellers are willing and able to sell

law of supply

the claim that the quantity supplied of a good rises when the price of the good rises, other things equal

Which way does a supply curve slope?

a supply curve slopes up

What makes a supply curve shift?

• input prices

• technology

• # of sellers

• expectations

equilibrium

where quantity supplied equals quantity demanded

equilibrium quantity

the quantity supplied and quantity demanded at the equilibrium price

surplus (excess supply)

when quantity supplied is greater than quantity demanded

shortage (excess demand)

when quantity demanded is greater than quantity supplied

Three steps to Analyzing Change in Equilibrium

1. Decide whether event shifts S curve, D curve, or both

2. decide in which direction curve shifts

3. Use supply-demand diagram to see how the shift changes equilibrium P and Q