2.1-2.6 Demand and Supply, Consumer and Producer surplus, PED, PES, YED

Quantity demanded

Quantity of a good consumers are willing and able to purchase, at a given price and at a given time

Law of demand

As price increases, quantity demanded will decrease, ceteris paribus

Quantity supplied

Quantity of a good producers are willing and able to supply, at a given price and at a given time

Law of supply

As price increases, quantity supplied will increase, ceteris paribus

Equilibrium

A state of balance where there is no tendency for price to change, where demand is equal to supply

Price mechanism

A system where the forces of demand and supply determine the prices of goods and services and the changes therein

Consumer surplus

The extra utility (satisfaction) gained by consumers from paying a price that is lower than that which they are willing and able to pay

Producer surplus

The extra earnings that a producer makes from a given quantity of output, over and above that amount the producer would be prepared to accept for that output

Allocative efficiency

When total social surplus is maximised

Welfare Loss

Loss to total economic surplus because the market allocation of resources is not efficient

Price Elasticity of Demand PED

A measure of the responsiveness of the quantity demanded of a product to a change in price

Income Elasticity of Demand YED

A measure of the responsiveness of the quantity demanded of a product to a change in consumers' income

Price Elasticity of Supply PES

A measure of the responsiveness of the quantity supplied of a product to a change in price