Economics Chapter 1-8: Demand, Supply, and Market Equilibrium

Vocabulary terms and definitions covering key concepts of supply, demand, shift factors, and market equilibrium from the lecture notes.

Law of Demand

The economic principle stating that a higher price leads to a smaller quantity demanded, while a lower price leads to a higher quantity demanded.

Normal Good

A good for which demand increases as consumer income increases.

Inferior Good

A good for which demand decreases as consumer income increases.

Quantity Supplied

The amount of a good or service that producers plan to sell in a given period at a specific price.

Law of Supply

The economic principle stating that a higher price leads to a higher quantity supplied, as firms want to bring more to market at higher prices.

Marginal Cost of Production

The cost of producing the last unit of a good; producers will only supply a unit if the price they receive at least equals this cost.

Factors of Production

The inputs used to produce a good or service, such as labor or raw materials, changes in whose prices shift the supply curve.

Substitute in Production

An alternative good that a firm can produce using the same resources and factors of production, such as denim shirts versus denim jeans.

Complement in Production

A good that is produced jointly or at the same time as another good from the same input, such as cream and low-fat milk.

Market Equilibrium

A state in a market where opposing forces balance each other because the buying plans of consumers and the selling plans of firms are perfectly aligned.

Equilibrium Price

The price at which the quantity supplied by producers exactly equals the quantity demanded by consumers.

Equilibrium Quantity

The quantity bought and sold when a market clears at the equilibrium price.

Surplus

A condition in which the quantity supplied is greater than the quantity demanded ($Q_s > Q_d$), occurring when the market price is above equilibrium.

Shortage

A condition in which the quantity demanded is greater than the quantity supplied ($Q_d > Q_s$), occurring when the market price is below equilibrium.