Unit 1 - Supply & Demand Model

Flashcards covering key vocabulary and concepts from a lecture on the supply and demand model in economics.

Supply and Demand Model

A foundational concept in economics where market phenomena can be simplified to matters of supply and demand.

Law of Demand

States that as the price of a good increases, consumers purchase less of it.

Complementary Goods

Goods typically purchased together; if the price of one increases, demand for the other may fall.

Substitute Goods

Goods often purchased instead of another, typically in response to price fluctuations.

Demand Curve

A graph representing demand with price on the y-axis and quantity on the x-axis.

Algebraic Representation of Demand

Representing demand using mathematical equations to analyze the impact of multiple influences on quantity.

Elasticity

The responsiveness of quantity demanded to a change in price, calculated as %∆q / %∆p.

Costs

The costs of production involved with producing a good.

Supply Curve

A graph representing supply, typically with an opposite slope to the demand curve.

Summation of Curves

Summing the demand or supply for each agent (individual or firm) to get aggregate values.

Equilibrium

A state wherein no agent can become better off by changing their action; in supply and demand, it is where supply equals demand.

Price Taking

Agents in the market are not capable of influencing Market prices.

Identical Products (in S&D Model)

All goods transacting in the market must be considered the same or very similar.

Full Information

All agents in the market possess full information about the price and quality of the goods.

Low Trading Costs

Where there is little to no market frictions present.