chapter 3 demand and supply

ceteris paribus

Other things being equal.

complements

Goods that are often used together so that consumption of one good tends to enhance consumption of the other.

consumer surplus

The extra benefit consumers receive from buying a good or service, measured by what the individuals would have been willing to pay minus the amount that they actually paid.

deadweight loss

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

demand

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

demand curve

A graphic representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis.

demand schedule

A table that shows a range of prices for a certain good or service and the quantity demanded at each price.

economic surplus

See social surplus.

equilibrium

The situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses or shortages that would cause price or quantity to change.

equilibrium price

The price where quantity demanded is equal to quantity supplied.

equilibrium quantity

The quantity at which quantity demanded and quantity supplied are equal for a certain price level.

excess demand

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

excess supply

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

factors of production

The resources such as labor, materials, and machinery that are used to produce goods and services; also called inputs.

inferior good

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

inputs

The resources such as labor, materials, and machinery that are used to produce goods and services; also called factors of production.

law of demand

The common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant.

law of supply

The common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant.

normal good

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

price

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

price ceiling

A legal maximum price.

price control

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

price floor

A legal minimum price.

producer surplus

The extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept.

quantity demanded

The total number of units of a good or service consumers are willing to purchase at a given price.

quantity supplied

The total number of units of a good or service producers are willing to sell at a given price.

shift in demand

When a change in some economic factor (other than price) causes a different quantity to be demanded at every price.

shift in supply

When a change in some economic factor (other than price) causes a different quantity to be supplied at every price.

shortage

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

social surplus

The sum of consumer surplus and producer surplus.

substitute

A good that can replace another to some extent, so that greater consumption of one good can mean less of the other.

supply

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

supply curve

A line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis.

supply schedule

A table that shows a range of prices for a good or service and the quantity supplied at each price.

surplus

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

total surplus

See social surplus.