Chap 3 Reading

Demand

Willingness and ability of consumers to buy a good

Quantity demanded

Amount of a good consumers are willing and able to buy at a specific price

Law of Demand

When price increases, quantity demanded decreases; when price decreases, quantity demanded increases

Demand curve

Graph showing the relationship between price and quantity demanded

Substitute

A good that can be used instead of another good

Complement

A good that is used together with another good

Normal good

A good for which demand increases when income increases

Inferior good

A good for which demand decreases when income increases

Supply

Willingness and ability of producers to sell a good

Quantity supplied

Amount of a good producers are willing and able to sell at a specific price

Law of Supply

When price increases, quantity supplied increases; when price decreases, quantity supplied decreases

Minimum supply price

Lowest price a producer is willing to accept for selling a particular quantity

Equilibrium

Point where quantity demanded equals quantity supplied

Equilibrium price

Price at which quantity demanded equals quantity supplied

Equilibrium quantity

Quantity bought and sold at the equilibrium price

Shortage

When quantity demanded is greater than quantity supplied

Surplus

When quantity supplied is greater than quantity demanded

Change in quantity demanded

Movement along the same demand curve caused by a change in the good's own price

Change in demand

Shift of the entire demand curve caused by a factor other than the good's own price

Change in quantity supplied

Movement along the same supply curve caused by a change in the good's own price

Change in supply

Shift of the entire supply curve caused by a factor other than the good's own price

Demand increases

Price increases and quantity increases

Demand decreases

Price decreases and quantity decreases

Supply increases

Price decreases and quantity increases

Supply decreases

Price increases and quantity decreases

Demand curve shift right

Demand increases; equilibrium price increases and equilibrium quantity increases

Demand curve shift left

Demand decreases; equilibrium price decreases and equilibrium quantity decreases

Supply curve shift right

Supply increases; equilibrium price decreases and equilibrium quantity increases

Supply curve shift left

Supply decreases; equilibrium price increases and equilibrium quantity decreases

Price increase

Quantity demanded decreases and quantity supplied increases

Price decrease

Quantity demanded increases and quantity supplied decreases

Movement along demand curve

Caused by a change in the good's own price

Movement along supply curve

Caused by a change in the good's own price

Demand shift

Caused by a factor other than the good's own price

Supply shift

Caused by a factor other than the good's own price

Shortage effect

Shortage puts upward pressure on price

Surplus effect

Surplus puts downward pressure on price

Shortage condition

Quantity demanded is greater than quantity supplied

Surplus condition

Quantity supplied is greater than quantity demanded

Equilibrium condition

Quantity demanded equals quantity supplied

Demand equation

P = a − bQ

Supply equation

P = c + dQ

Equilibrium algebra

Set the demand equation equal to the supply equation and solve for Q, then substitute Q back in to find P