Market Forces: Demand and Supply

This set of flashcards covers key concepts from the lecture on market forces, including demand, supply, consumer surplus, and market equilibrium.

What is the law of demand?

The quantity of a good demanded increases as the price falls, and decreases as the price rises.

What does the demand curve illustrate?

The relationship between the total quantity of a good that consumers are willing and able to purchase and the price per unit of that good.

What is consumer surplus?

The extra value that consumers derive from a good that they do not pay extra for.

What causes a shift in the demand curve?

Changes in factors other than price, such as income, consumer preferences, and the prices of related goods.

What are normal goods?

Goods for which demand increases when consumer income rises.

What is a price ceiling?

The maximum legal price that can be charged in a market.

What is the effect of an excise tax?

It increases the cost per unit, shifting the supply curve to the left.

What is market equilibrium?

The point where the quantity demanded equals the quantity supplied, resulting in no shortage or surplus.

Define producer surplus.

The amount producers receive in excess of the amount necessary to induce them to produce the good.

What is price discrimination?

The practice of charging different prices to different consumers for the same good or service.

How do changes in supply affect equilibrium price?

An increase in supply generally leads to a decrease in equilibrium price, while a decrease in supply usually leads to an increase in equilibrium price.

What are substitute goods?

Goods that can replace each other; an increase in the price of one leads to an increase in the demand for the other.

What does a movement along the demand curve represent?

A change in quantity demanded as a result of a change in the good's price.

What factors can shift supply curves?

Input prices, technology, number of firms, taxes, and producer expectations.

What is the choke price in a market?

The price at which consumers demand no quantity of the good.

How is the demand function represented mathematically?

As a linear function incorporating the price of the good, the prices of related goods, income, and other variables.

What happens when both demand and supply increase?

The equilibrium quantity will increase, but the effect on equilibrium price depends on the relative magnitudes of the shifts.