Understanding Supply and Demand Dynamics

Demand

Willingness and ability to purchase goods/services.

Law of Demand

Price increase leads to lower quantity demanded.

Quantity Demanded

Specific units buyers will purchase at price.

Demand in symbols

p(arrow up)Qd(arrow down) P(arrow down)Qd(arrow up) ceteris paribus

Demand Schedule

Numerical representation of the law of demand.

Demand Curve

Graphical representation of price-quantity relationship.

Law of Diminishing Marginal Utility

For a given time period, the marginal utility gained will decline as the amount consumed increases. Satisfaction decreases as consumption increases.

Individual Demand Curve

Price-quantity combinations for a single buyer.

Market Demand Curve

Aggregate price-quantity combinations for all buyers.

Change in Quantity Demanded

Movement along the same demand curve due to price.

Change in Demand

Shift in demand curve at all price levels.

Increase in Demand

Rightward shift in the demand curve.

Decrease in Demand

Leftward shift in the demand curve.

Factors Shifting Demand

Income, preferences, related goods, buyers, expectations.

Market-Clearing Price

Price at which quantity supplied equals quantity demanded.

Normal Good

Demand rises as income increases.

Inferior Good

Demand falls as income increases.

Neutral Good

Demand remains unchanged with income changes.

Preferences

Consumer tastes affecting demand for goods.

Substitutes

Goods satisfying similar needs; demand rises together.

Complements

Goods consumed jointly; demand inversely related.

Number of Buyers

More buyers increase demand; fewer decrease demand.

Supply

Willingness to produce and sell goods at prices.

Law of Supply

Price increase leads to higher quantity supplied.

Quantity Supplied

Specific units sellers are willing to sell.

Supply Curve

Graph showing price-quantity relationships for sellers.

Law of Diminishing Marginal Returns

The specific number of units of a good that individuals are willing and able to sell at a particular price.

Individual Supply Curve

Price-quantity combinations for a single seller.

Market Supply Curve

Aggregate price-quantity combinations for all sellers.

Supply Schedule

Numerical representation of quantity supplied at prices.

Output Increase

More goods produced with same resources.

Prices of Relevant Resources

If the price of a resource falls, producing the good becomes less costly

Technology

is the body of skills and knowledge concerning the use of resources in production

Price of Other Goods

Change in one good's price affects another.

Number of Sellers

More sellers increase overall supply.

Future Price Expectations

Anticipated price changes affect current supply.

Taxes

Higher taxes increase per-unit production costs.

Subsidies

Government payments increase supply at each price.

Government Restrictions

Regulations limiting supply, like import quotas.

Surplus

Excess supply; quantity supplied exceeds demand.

Equilibrium Price

Point where supply equals demand.

Shortage

Condition where quantity demanded exceeds quantity supplied.

Equilibrium Quantity

Quantity at which supply equals demand.

Disequilibrium Price

a price other than equilibrium price; a price at which the quantity demanded does not equal the quantity supplied

Disequilibrium

a state of either surplus or shortage in a market

Equilibrium

"at rest"; the price-quantity combination from which buyers or sellers do not tend to move away; the intersection point of the supply and demand curve (Qs = Qd )

Consumers' Surplus

is the difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid for it

Producers Surplus

is the difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good

Total Surplus

Consumers' Surplus + Producers' Surplus