Demand, Supply, Equilibrium, and Elasticity - Video Vocabulary

Vocabulary flashcards covering equilibrium concepts, surplus/shortage, price functions (rationing and allocative), market failures, price controls, and elasticity (including types and determinants).

Equilibrium price (P*)

The price at which quantity demanded equals quantity supplied; the intersection of the demand and supply curves.

Equilibrium quantity (Q*)

The quantity at the equilibrium price where Qd = Qs.

Equilibrium point

The point on the graph where the demand and supply curves cross, indicating market balance.

Demand curve

A downward-sloping curve that shows the quantity of a good consumers are willing to buy at each price.

Supply curve

An upward-sloping curve that shows the quantity of a good producers are willing to sell at each price.

Equilibrium condition (Qd = Qs)

The condition that must hold for market equilibrium: the quantity demanded equals the quantity supplied.

Surplus

When the market price is above equilibrium, causing quantity supplied to exceed quantity demanded.

Shortage

When the market price is below equilibrium, causing quantity demanded to exceed quantity supplied.

Price mechanism

The process by which prices adjust due to buyers' and sellers' decisions, guiding markets toward equilibrium.

Rationing function of prices

Prices allocate scarce goods to those who value them most and can pay, signaling scarce resources.

Allocative function of prices

Prices direct resources toward uses and industries valued more by society.

Externalities

Side effects of production or consumption that affect third parties (positive or negative).

Negative externality

A spillover (harmful) effect on others not reflected in market prices, e.g., pollution.

Public goods

Goods that are non-excludable and non-rival; markets may underprovide, often requiring government provision.

Market failure

When markets fail to allocate resources efficiently due to missing supply, externalities, or public goods.

Price ceiling

A legal maximum price set by government; can lead to shortages.

Price floor

A legal minimum price set by government; can lead to surpluses.

Black market

An illegal market that emerges when price controls or shortages create incentive to trade outside legal channels.

Elasticity of demand

A measure of how much quantity demanded responds to a change in price.

Price elasticity of demand (E_d)

The percentage change in quantity demanded divided by the percentage change in price (often using midpoint formula).

Elastic

Elasticity greater than 1; quantity demanded changes by a larger percentage than price.

Inelastic

Elasticity less than 1; quantity demanded changes little with price changes.

Unitary elasticity

Elasticity equal to 1; percentage change in quantity equals percentage change in price.

Perfectly inelastic demand

Elasticity equal to 0; quantity demanded does not change when price changes (vertical demand curve).

Perfectly elastic demand

Elasticity equal to infinity; quantity demanded changes dramatically with any price change (horizontal demand curve).

Midpoint (arc) elasticity

Elasticity calculated using the average of quantities and prices to avoid direction bias in the interval.

Substitutes

Goods that can replace each other; when the price of one rises, demand for the other tends to rise.

Complements

Goods often consumed together; a price change in one affects the demand for the other.

Determinants of demand

Factors that shift the demand curve: income, prices of substitutes/complements, preferences, expectations, number of buyers.

Determinants of supply

Factors that shift the supply curve: input prices, technology, expectations, number of sellers, taxes/subsidies.