Economics: Principles of Supply, Market Equilibrium, and Determinants

Vocabulary flashcards covering the key terms and concepts related to market supply, determinants of supply, and market equilibrium based on the lecture.

Law of Supply

The economic principle stating that there is a positive relationship between price and quantity supplied, driven primarily by the producer's goal of maximizing profit.

Supply Schedule

A table showing the numerical positive relationship between price and quantity supplied, serving as an illustration of the law of supply.

Minimum Supply Price

The bare minimum price a producer must receive to cover the marginal cost of producing an additional unit of a good or service.

Willingness to Accept

An alternative description for the minimum supply price or marginal cost curve, representing the lowest price a seller requires to produce a given unit.

Cost of Inputs

The prices paid for the factors of production (such as labor wages, rent, raw materials, or energy); an increase in input costs reduces supply and shifts the supply curve to the left.

Complements in Production

Goods that are generated together from the same source or byproduct (e.g., milk and cheese, or lumber and sawdust); an increase in the price of one increases the supply of the other.

Substitutes in Production

Goods that can be produced using the same resources or land (e.g., corn and soybeans); an increase in the price of one leads to a decrease in the supply of the other.

Subsidy

A financial incentive or payment from the government to a producer (effectively a negative tax) that lowers production costs and increases supply.

Price Expectations (Producer)

The seller's anticipation of future price changes; if producers expect higher prices in the future, they decrease current supply to sell product later.

Equilibrium Price

The market price where the quantity demanded by consumers exactly equals the quantity supplied by producers.

Surplus

A condition in which the market price is above the equilibrium price, causing quantity supplied to exceed quantity demanded and exerting downward pressure on price.

Shortage

A condition in which the market price is below the equilibrium price, causing quantity demanded to exceed quantity supplied and exerting upward pressure on price.

Menu Costs

The real costs incurred by a business when updating or changing its prices, which can slow down the speed at which a market adjusts to equilibrium.