Econ 1101 Handout 2 - Supply and Demand

Vocabulary flashcards for Econ 1101 covering supply and demand concepts.

Competitive Market

A market in which there are many buyers and many sellers, each having a negligible impact on the market price.

Perfectly Competitive Market

A market where goods offered for sale are identical, and buyers and sellers are price takers.

Demand

The relationship between the price (P) of a good and its quantity demanded (QD).

Law of Demand

Other things being equal, when the price of a good rises, the quantity demanded falls, and vice versa.

Supply

The relationship between the price (P) of a good and its quantity supplied (QS).

Law of Supply

Other things being equal, when the price of a good rises, the quantity supplied also rises, and vice versa.

Normal Good

A good for which demand increases when income increases.

Inferior Good

A good for which demand decreases when income increases.

Substitutes

Goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Goods for which an increase in the price of one leads to a decrease in the demand for the other.

Equilibrium

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

Equilibrium Price

The price that balances quantity supplied and quantity demanded.

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price.

Surplus

A situation in which quantity supplied is greater than quantity demanded.

Shortage

A situation in which quantity demanded is greater than quantity supplied.