Fundamentals of Market Dynamics and Equilibrium

Market

A group of buyers and sellers of a particular good or service.

Competitive Market

A market in which there are many buyers and sellers so each has a negligible impact on the market price.

Perfectly Competitive Market

A market with many buyers and sellers where all goods are identical and no single buyer or seller can influence the price.

Quantity Demanded

The amount of a good that buyers are willing and able to purchase.

Law of Demand

All else equal, as the price of a good falls, the quantity demanded rises.

Demand Schedule

A table that shows the relationship between the price of a good and the quantity demanded.

Demand Curve

A graph of the relationship between the price of a good and the quantity demanded.

Shift in the Demand Curve

Changes in income, prices of related goods, tastes, expectations, and number of buyers.

Quantity Supplied

The amount of a good that sellers are willing and able to sell.

Law of Supply

All else equal, as the price of a good rises, the quantity supplied increases.

Supply Schedule

A table that shows the relationship between the price of a good and the quantity supplied.

Supply Curve

A graph of the relationship between the price of a good and the quantity supplied.

Shift in the Supply Curve

Changes in input prices, technology, expectations, and number of sellers.

Equilibrium

The point where the supply and demand curves intersect.

Equilibrium Price

The price that balances quantity supplied and quantity demanded.

Equilibrium Quantity

The quantity supplied and demanded at the equilibrium price.

Surplus

When quantity supplied is greater than quantity demanded.

Shortage

When quantity demanded is greater than quantity supplied.

Market Response to Surplus

Prices fall, which increases quantity demanded and decreases quantity supplied.

Market Response to Shortage

Prices rise, which decreases quantity demanded and increases quantity supplied.