RAT 1 ECON 3140

supply

the combined amount of a good that all producers in a market are willing to sell

demand

the combined amount of a good that all consumers in a market are willing to buy

factors that influence demand

price, # of consumers, consumer income/wealth, consumer tastes, price of other goods

factors that influence supply

price, suppliers cost of production, # of sellers, sellers outside options

substitute

a good that can be used in place of another

complement

a good that is purchased & used in combination with another good

inverse demand

written in the form of price as a function of quantity demanded

inverse supply

written in the form of a price as a function of quantity demanded

choke demand price

the price at which no consumer is willing to buy a good & quantity demanded is zero, the vertical intercept of the inverse demand curve

choke supply price

the price at which no consumer is willing to buy a good & quantity supplied is zero, the vertical intercept of the inverse supple curve

change in quantity demanded/supplied

a movement along the demand/supply curve that occurs as a result of a change in the goods price

change in demand/supply

a shift of the entire demand/supply curve caused by a change in a determinant of demand other than the goods own price

production technology

the processes used to make, distribute, and sell a good

market equilibrium

the point at which the quantity demanded by consumers exactly equals the quantity supplied by producers

equilibrium price

the price at which the quantity supplied equals quantity demanded

excess supply/surplus

if current price is higher than the equilibrium price

excess demand/shortage

if the current price is lower than the equilibrium price

elasticity

the ratio of the percentage change on one value to the percentage change in another

price elasticity of demand/supply

the percentage change in quantity demanded/supplied resulting from a given percentage change in price

elastic

greater than 1, sensitive to change

inelastic

less than one, insensitive to change

inferior goods

demand decreases when income rises

normal goods

demand rises when income rises

luxury goods

income elasticity greater than 1

income elasticity of demand

percentage change in demand associated with a change in consumer income

cross price elasticity of demand

percentage change in quantity demanded of one good associated with price change in another

own price elasticities of demand

percentage change in quantity demanded resulting from price change of that good

consumer surplus

difference between what consumers are willing to pay and the amount they actually pay

producer surplus

the difference between the price producers actually receive and how much they are willing to sell for

price ceiling

sets highest price legally paid

price floor

sets lowest price legally paid

deadweight loss

reduction in total surplus due to market inefficiency

quota

regulation that sets quantity

tax incidence

who is actually paying the tax

subsidy

payment by the government to a buyer or seller of a good or service

elasticity equation

percent change in quantity / percent change in price

income elasticity equation

percent change in quantity / percent change in income

cross price elasticity equations

percent change in demand good a / percent change in price of good b