Chapter 3: Supply and Putting Supply and Demand Together

A set of vocabulary flashcards covering basic supply and demand principles, shifts vs. movements, equilibrium, disequilibrium, and relative pricing concepts from Chapter 3.

Law of Supply

An economic principle stating that price and quantity supplied are directly related, ceteris paribus, because higher production raises the opportunity costs of production.

Market Equilibrium

The condition on a supply-and-demand diagram where the demand and supply curves intersect, establishing a single price where quantity demanded equals quantity supplied.

Surplus

An excess supply condition occurring at any price above the equilibrium price, where quantity supplied exceeds quantity demanded, causing sellers' inventories to rise and pushing the price downward.

Shortage

An excess demand condition occurring at any price below the equilibrium price, where quantity demanded exceeds quantity supplied, pushing the price upward toward equilibrium.

Market Disequilibrium

A market condition in which a market exhibits either a surplus or a shortage because the current market price is not at equilibrium.

Vertical Supply Curve

A supply curve representing an independent relationship between price and quantity supplied, occurring when there is no time to produce more units or when a good cannot be produced over any period of time.

Relative Price

The price of one good expressed in terms of another good, calculated as the ratio of their absolute prices.

Absolute Price

The price of a good expressed in monetary terms (dollars).

Increase in Demand

A rightward shift of the entire demand curve, indicating that buyers are willing and able to purchase more of a good at every price.

Decrease in Demand

A leftward shift of the entire demand curve, indicating that buyers are willing and able to purchase less of a good at every price.

Increase in Quantity Demanded

A movement down along a fixed demand curve caused by a decrease in the good's price, resulting in consumers purchasing more units.

Decrease in Quantity Demanded

A movement up along a fixed demand curve caused by an increase in the good's price, resulting in consumers purchasing fewer units.

Rightward Shift in Supply

A shift indicating suppliers are willing and able to offer more of a good for sale at every price, caused by factors such as wage decreases, advances in technology, or government subsidies.

Leftward Shift in Supply

A shift indicating suppliers are willing and able to offer less of a good for sale at every price, caused by factors such as wage increases, higher resource prices, or per-unit taxes.

Market-Clearing Price

Another name for the equilibrium price, where quantity demanded equals quantity supplied and there is neither a surplus nor a shortage.

Exhibit 3-4 Market Equilibrium

The point on the graph where demand curve $D$ and supply curve $S$ intersect, identifying an equilibrium price of $\$4$ and an equilibrium quantity of $15\,\text{units}$.