Principles of Microeconomics: Supply, Demand, and Market Equilibrium

Comprehensive vocabulary flashcards covering the core concepts of supply, demand, market equilibrium, and price allocation mechanisms from Mankiw's Principles of Economics.

Resource Allocation (in Market Economies)

The mechanism by which the forces of supply and demand distribute scarce resources among competing uses based on willingness and ability to pay.

Prices (as Economic Signals)

The signals that guide the allocation of resources, coordinate decentralized decisions, and determine who produces each good and how much is produced in a market economy.

The Baton of the Invisible Hand

In Adam Smith's analogy of market economies, prices serve as the baton used by the invisible hand to conduct the economic orchestra.

Quantity Supplied

The specific amount of a good or service that sellers are willing and able to sell at a particular price.

Law of Supply

The economic claim that, other things equal, the quantity supplied of a good rises when the price of the good rises, and falls when the price falls.

Supply Schedule

A table showing the relationship between the price of a good and the quantity supplied, holding constant all nonprice determinants.

Supply Curve

An upward-sloping line on a graph relating price on the vertical axis to quantity supplied on the horizontal axis.

Movement Along the Supply Curve

A change in the quantity supplied caused solely by a change in the price of the good or service itself.

Shift of the Supply Curve

A change in supply at every possible price resulting from a change in a nonprice determinant such as input prices, technology, expectations, or the number of sellers.

Market Supply Curve

The curve obtained by horizontally summing the quantities supplied by all individual sellers at each possible price.

Quantity Demanded

The amount of a good or service that buyers are willing and able to purchase at a specific price.

Law of Demand

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

Demand Schedule

A table showing the relationship between the price of a good and the quantity demanded, holding constant all nonprice determinants.

Demand Curve

A downward-sloping line on a graph relating price on the vertical axis to quantity demanded on the horizontal axis.

Movement Along the Demand Curve

A change in the quantity demanded caused directly by a change in the price of the good or service itself.

Shift of the Demand Curve

A change in demand that occurs when a nonprice determinant (income, prices of related goods, tastes, expectations, or the number of buyers) alters quantity demanded at every price.

Market Demand Curve

The horizontal summation of all individual demand curves, representing the sum of quantities demanded by all buyers at each possible price.

Normal Good

A good for which an increase in consumer income leads to an increase in demand, and a decrease in consumer income leads to a decrease in demand.

Inferior Good

A good for which an increase in consumer income leads to a decrease in demand, and a decrease in consumer income leads to an increase in demand.

Substitute Goods

Two goods such that a decrease in the price of one good leads to a decrease in the demand for the other good (or a price increase leads to an increase in demand).

Complementary Goods

Two goods such that a decrease in the price of one good leads to an increase in the demand for the other good (or a price increase leads to a decrease in demand).

Equilibrium

A situation where market forces are in balance, represented by the unique point at which the supply and demand curves intersect.

Equilibrium Price (Market-Clearing Price)

The price at which quantity demanded exactly equals quantity supplied, allowing buyers to buy all they wish and sellers to sell all they wish.

Equilibrium Quantity

The quantity supplied and quantity demanded at the equilibrium price.

Surplus (Excess Supply)

A situation in which the actual price is above the equilibrium price, resulting in quantity supplied exceeding quantity demanded and putting downward pressure on price.

Shortage (Excess Demand)

A situation in which the actual price is below the equilibrium price, resulting in quantity demanded exceeding quantity supplied and putting upward pressure on price.

Law of Supply and Demand

The assertion that the price of any good naturally adjusts to bring the quantity supplied and the quantity demanded into balance.