Economics: Demand, Supply, and Consumer Surplus Concepts

demand curve

The curve that shows the relationship between the price of a good and the quantity that consumers are willing to purchase at each price.

quantity demanded

The quantity demanded at that price indicated by each point on the demand curve.

law of demand

If product price increases, quantity demanded will decrease.

reaction to price decrease

As the price of a good decreases, buyers buy more of it.

substitution effect

Consumers will substitute other goods like margarine for the more expensive butter when the price of butter increases.

height of the demand curve

Indicates the maximum price consumers are willing to pay for an additional unit of it.

consumer surplus

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good.

consumer surplus calculation

Katie, Kendra, and Kristen's consumer surplus for a cell phone purchased at $80 is $35.

Shannon's consumer surplus

Shannon receives consumer surplus of $25 on her CD player purchase if her willingness to pay is $160.

Andrew's consumer surplus

Andrew paid $2,300 for his laptop computer, realizing a consumer surplus of $700.

effect of price increase on consumer surplus

If the price of a good increases, consumer surplus decreases.

effect of lemon crop freeze

If there is an early freeze in California that reduces the size of the lemon crop, consumer surplus in the market for lemons decreases.

sensitivity of demand

If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a demand curve that is relatively flat (more horizontal).

elastic demand

If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively elastic.

Supply curve that is relatively flat

supply curve that is relatively flat (more horizontal).

Supply curve that is relatively steep

supply curve that is relatively steep (more vertical).

Demand sensitivity to price

If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively elastic.

Inelastic demand

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be relatively inelastic.

Price elasticity of demand

The price elasticity of demand for a commodity is determined primarily by the availability of good substitutes for the good.

Inelastic good example

Of the following goods, which is most likely to be quite inelastic? Gasoline.

Effect of price rise on demand

If price rises, what happens to the demand for a product? It does not change.

Effect of price rise on quantity demanded

If price rises, what happens to the quantity demanded for a product? It decreases.

Decrease in demand

When economists say the demand for a product has decreased, they mean the demand curve has shifted to the left.

Increase in quantity demanded

When economists say the quantity demanded of a product has increased, they mean the price of the product has fallen, and consequently, consumers are buying more of it.

Correct usage of demand terms

In which statement(s) are 'demand' and 'quantity demanded' used correctly? (I) 'An increase in the price of coffee will reduce the quantity demanded of coffee.' (II) 'An increase in the price of coffee will reduce the demand for creamer used in coffee.'

Effect of decrease in price of tomato juice

Which of the following best represents the effects of a decrease in the price of tomato juice, other things being equal? A downward movement along the demand curve for tomato juice.

Expectation of price rise

If people expect the price of coffee to rise next month, the demand for coffee will increase now.

Increase in demand for computer software

Which of the following would lead to an increase in the demand for computer software? A decrease in the price of personal computers.

Increase in consumer income effect

Other things constant, an increase in consumer income will.

Increase in consumer income

Shifts the demand curve for automobiles to the right.

Decrease in consumer income

Causes the market demand for a typical product to decrease, which is a shift to the left of the demand curve.

Increase in population

Leads to an increase in the demand for fast food in Houston.

Increase in number of consumers

Causes the market demand curve to increase, which is a shift to the right of the demand curve.

Substitutes

Two goods are considered substitutes only if an increase in the price of one leads to an increase in the demand for the other.

Increase in price of a good

Normally increases the demand for its substitutes.

Decrease in price of coffee

Causes the demand curve for tea (a substitute good) to shift to the left.

Increase in prices of television sets

Most likely decreases the current demand for DVD players.

Increase in price of coffee

Causes the demand for cream to fall.

Decrease in price of widgets

Leads to an increase in the demand for gadgets, indicating that widgets and gadgets are complements.

Increase in expected future price of a good

Causes the current demand for the good to increase, which is a shift to the right of the demand curve.

Major price reductions on computers

Causes the current demand for computers to decrease.

Elderly Consumers

An increase in elderly consumers in a market is expected to increase the demand for medical services.

Opportunity Cost of Production

It differs from an accounting definition of a firm's costs because it includes the opportunity cost of assets and financial resources owned by the firm.

Firm's Long-Term Viability

If a firm is not covering the cost of all resources employed, it will generally go out of business in the long run.

Economic Profit

When a firm is earning economic profit, it indicates the firm is increasing the value of the resources that it is using.

Law of Supply

According to the law of supply, more of a good will be offered by suppliers as the price rises.

Supply Curve Height

The height of the supply curve at a quantity of 100 represents the minimum price required to induce a producer to supply the hundredth unit.

Producer Surplus

If the demand for nachos increases, producer surplus in the market for nachos increases.

Producer Surplus Example

Bill is willing to cut lawns for a minimum of $200 a week but is paid $250, which is an example of producer surplus.

Transaction Producer Surplus

If Harry is paid $25,000 to sell his crop of tomatoes, even though he would have sold it for $20,000, he received $5,000 of producer surplus.

Sensitivity of Supply

If the quantity of a good supplied is highly sensitive to the price of the good, it is illustrated by a supply curve that is relatively flat (more horizontal).

Elastic Supply

If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively elastic.

Inelastic Supply

If the supply of a good is relatively inelastic, this means that the quantity supplied of the good is not very sensitive to the price of the good.

Percentage Change in Supply

If a large percentage increase in the price of a good results in a small percentage increase in the quantity supplied, supply is said to be relatively inelastic.

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