Law of Demand and Supply

an organization that transforms resources (inputs) into products (outputs).

firm

is a person who organizes, manages, and assumes the risks of a firm

entrepreneur

are the consuming units in an economy.

Households

shows the connections between firms and households in input and output markets.

circular flow of economic activity

are the markets in which goods and services are exchanged

Output, or product markets

The markets in which resources, labor, capital, and land used to produce products, are exchanged.

Input market

It is a input market in which households supply work for wages to firms that demand labor.

Labor market

It is a input market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.

Capital market

It is a input market in which households supply land or other real property in exchange for rent.

Land market

is the amount (number of units) of a product that a household would buy in a given time period if it could buy all it wanted at the current market price.

Quantity demanded

It is a table showing how much of a given product a household would be willing to buy at different prices.

demand schedule

It is a graph illustrating how much of a given product a household would be willing to buy at different prices.

demand curve

This law states that there is a negative, or inverse, relationship between price and the quantity of a good demanded.

law of demand

Demand curves intersect the quantity ____-axis, as a result of time limitations and diminishing marginal utility.

X- axis

Demand curves intersect the _____-axis, as a result of limited incomes and wealth.

Y-axis

It is the sum of all households wages, salaries, profits, interest payments, rents, and other forms of earnings in a given period of time. It is a flow measure.

Income

It is the total value of what a household owns minus what it owes. It is a stock measure.

Wealth or net worth

These are goods for which demand goes up when income is higher and for which demand goes down when income is lower.

Normal Goods

These are goods for which demand falls when income rises

Inferior Goods

These are goods that can serve as replacements for one another.

Substitutes

These are goods that “go together”

Complements

Demand shifts to the ________, demand increases. This causes quantity demanded to be greater than it was prior to the shift, for each and every price level.

Right

A Change in Demand Versus a Change in Quantity Demanded

It is a change in price of a good or service leads to change in

quantity demanded

A Change in Demand Versus a Change in Quantity Demanded:

Change in the non-price determinants of demand leads to change in

demand

Demand for a good or service can be defined for an _______________, or for a group of households that make up a market.

individual household

It is the sum of all the quantities of a good or service demanded per period by all the households buying in the market for that good or service.

Market demand

It is a table showing how much  of a product firms will supply at different prices.

supply schedule

This represents the number of units of a product that a firm would be willing supply.

Quantity supplied

It is a graph illustrating how much of a product a firm will supply at different prices.

supply curve

This law states that there is a positive relationship between price and quantity of a good supplied.

law of supply

A higher price causes higher quantity supplied, and a move along the supply curve is an example of a change in

Change in supply

A Change in Supply Versus a Change in Quantity Supplied

Change in price of a good or service leads to change in

Quantity supplied

Change in the non-price determinants of supply leads to change in

Supply

It is the sum of all the quantities of a good or service supplied per period by all the firms selling in the market for that good or service.

Market supply

The operation of the market depends on the interaction between buyers and sellers.

Market Equilibrium

it is the condition that exists when quantity supplied and quantity demanded are equal.

equilibrium

Only in _________________ is quantity supplied equal to quantity demanded.

equilibrium

It is the condition that exists when quantity demanded exceeds quantity supplied at the current price

Excess demand, or shortage

It s the condition that exists when quantity supplied exceeds quantity demanded at the current price.

Excess supply, or surplus

It leads to higher equilibrium price and higher equilibrium quantity.

Higher demand

It leads to lower equilibrium price and higher equilibrium quantity.

Higher supply

It leads to lower price and lower quantity exchanged.

Lower demand

It leads to higher price and lower quantity exchanged.

Lower supply

It is the ratio of the percentage increase in quantity to the percentage increase in what affects it.

Elasticity

It refers to the ratio between a percentage change in quantity demanded due to a corresponding percentage change in price.

Price Elasticity of Demand