Economics: Demand, Supply, and Market Equilibrium Concepts

Demand

The willingness and ability to buy goods/services.

Law of Demand

When price goes up, quantity demanded goes down (and vice versa).

Quantity Demanded

The specific amount people are willing to buy at a certain price.

Demand Curve

A graph showing the relationship between price and quantity demanded.

Market Demand

The total demand of all buyers in a market.

Substitute Good

A good that can replace another (like Pepsi for Coke).

Complementary Good

A good that is used with another (like chips and salsa).

Normal Good

A good people buy more of when income increases.

Inferior Good

A good people buy less of when income increases.

Income Effect

When price changes, people feel richer/poorer and buy more/less.

Substitution Effect

When price changes, people switch to cheaper alternatives.

Shift in Demand

When factors other than price cause the demand curve to move.

Movement Along Demand Curve

When only price changes, moving up or down the curve.

Determinants of Demand

Factors like income, tastes, expectations, and related goods that shift demand.

Elasticity of Demand

How sensitive demand is to a price change.

Supply

The willingness and ability of producers to sell goods/services.

Law of Supply

When price goes up, quantity supplied goes up (and vice versa).

Quantity Supplied

The amount producers are willing to sell at a certain price.

Supply Curve

A graph showing the relationship between price and quantity supplied.

Shift in Supply

When factors other than price cause the supply curve to move.

Movement Along Supply Curve

When only price changes, moving up or down the curve.

Determinants of Supply

Factors like technology, input costs, number of sellers, and expectations that shift supply.

Equilibrium Price

The price where quantity demanded = quantity supplied.

Equilibrium Quantity

The amount bought and sold at equilibrium price.

Market Clearing Price

Another name for equilibrium price.

Surplus

When supply is greater than demand (too much left over).

Shortage

When demand is greater than supply (not enough available).

Price Mechanism

How supply and demand interact to set prices.

Invisible Hand

Adam Smith's idea that markets self-regulate through supply and demand.

Market Equilibrium

The stable point where demand and supply balance.

Increase in Demand

Demand curve shifts right, leading to higher equilibrium price and quantity.

Decrease in Demand

Demand curve shifts left, leading to lower equilibrium price and quantity.

Increase in Supply

Supply curve shifts right, lowering equilibrium price but raising equilibrium quantity.

Decrease in Supply

Supply curve shifts left, raising equilibrium price but lowering equilibrium quantity.

Double Shift

When both supply and demand shift at once (outcome depends on size of shifts).

Disequilibrium

When markets are not at equilibrium (causing surplus or shortage).

Shocks

Sudden events (like natural disasters or tech changes) that shift supply or demand.

Consumer Surplus

The benefit consumers get when they pay less than they're willing to.

Producer Surplus

The benefit producers get when they sell for more than their minimum acceptable price.

Total Surplus

The sum of consumer and producer surplus (measures market efficiency).

Price Control

When government sets legal limits on prices.

Price Ceiling

A legal maximum price (can cause shortages if below equilibrium).

Rent Control

A common price ceiling example (limits rent landlords can charge).

Price Floor

A legal minimum price (can cause surpluses if above equilibrium).

Minimum Wage

A price floor on labor (minimum pay workers must receive).

Binding Price Control

A control that affects the market (set above/below equilibrium).

Non-Binding Price Control

A control that does not affect the market (set above/below but not restricting).

Quantity Control

Government limits on how much of a good can be bought or sold.

Quota

A specific limit on the quantity of a good that can be sold.

Quota Rent

The extra earnings producers make when quotas raise prices above equilibrium.