MACROECONOMICS: DEMAND AND SUPPLY

Flashcards covering key vocabulary terms related to demand and supply in macroeconomics, including market structures, definitions of demand and supply, factors influencing them, and market equilibrium.

Market

Any arrangement that enables buyers and sellers to get information and do business with each other.

Competitive Market

A market that has many buyers and many sellers so no single buyer or seller can influence the price.

Money Price

The amount of money needed to buy a good.

Relative Price

The ratio of a good's money price to the money price of the next best alternative good, representing its opportunity cost.

Demand (economic definition)

Refers to the entire relationship between the price of a good and the quantity demanded, reflecting a decision about which wants to satisfy, requiring the buyer to want, afford, and plan to buy it.

Wants

The unlimited desires or wishes people have for goods and services.

Quantity Demanded

The amount of a good or service that consumers plan to buy during a particular time period at a particular price.

Law of Demand

States that, other things remaining the same, the higher the price of a good leads to a smaller quantity demanded, and the lower the price of a good leads to a larger quantity demanded.

Substitution Effect

When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, decreasing the quantity demanded.

Income Effect

When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, decreasing the quantity demanded.

Demand Curve

A graph that shows the relationship between the quantity demanded of a good and its price, assuming all other influences on planned purchases remain the same.

Willingness-and-Ability-to-Pay Curve

Another name for a demand curve, indicating the highest price someone is willing to pay for another unit, which measures marginal benefit.

Change in Demand

Occurs when an influence on buying plans other than the price of the good changes, causing the quantity demanded to change at every price and the entire demand curve to shift.

Substitute (good)

A good that can be used in place of another good.

Complement (good)

A good that is used in conjunction with another good.

Normal Good

A good for which demand increases as income increases.

Inferior Good

A good for which demand decreases as income increases.

Supply (economic definition)

Refers to the entire relationship between the quantity supplied and the price of a good, reflecting a firm's decision about what technologically feasible items to produce and sell.

Quantity Supplied

The amount that producers plan to sell during a given time period at a particular price.

Law of Supply

States that, other things remaining the same, the higher the price of a good leads to a greater quantity supplied, and the lower the price of a good leads to a smaller quantity supplied.

Supply Curve

A graph that shows the relationship between the quantity supplied of a good and its price, assuming all other influences on planned sales remain the same.

Minimum-Supply-Price Curve

Another name for a supply curve, representing the lowest price at which someone is willing to sell an additional unit, which is equal to marginal cost.

Change in Supply

Occurs when an influence on selling plans other than the price of the good changes, causing the quantity supplied to change at every price and the entire supply curve to shift.

Substitute in Production

Another good that can be produced using the same resources as a specific good.

Complement in Production

Goods that must be produced together.

Factors of Production

Resources used to produce goods and services; changes in their prices influence supply.

Technology (influence on supply)

Advances in technology create new products and lower production costs, thus increasing supply.

State of Nature (influence on supply)

All natural forces that influence production, such as weather and natural disasters, which can decrease supply.

Equilibrium

A situation in which opposing forces balance each other, such as in a market where buyers' and sellers' plans match.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Equilibrium Quantity

The quantity bought and sold at the equilibrium price.

Surplus

A situation where the quantity supplied exceeds the quantity demanded, typically when the price is above the equilibrium price.

Shortage

A situation where the quantity demanded exceeds the quantity supplied, typically when the price is below the equilibrium price.

Increase in Demand (effect)

Shifts the demand curve rightward, creating a shortage at the original price, causing price to rise and quantity supplied to increase along the supply curve.

Decrease in Demand (effect)

Shifts the demand curve leftward, creating a surplus at the original price, causing price to fall and quantity supplied to decrease along the supply curve.

Increase in Supply (effect)

Shifts the supply curve rightward, creating a surplus at the original price, causing price to fall and quantity demanded to increase along the demand curve.

Decrease in Supply (effect)

Shifts the supply curve leftward, creating a shortage at the original price, causing price to rise and quantity demanded to decrease along the demand curve.

Increase in both Demand and Supply (effect)

Increases the equilibrium quantity; the change in equilibrium price is uncertain.

Decrease in both Demand and Supply (effect)

Decreases the equilibrium quantity; the change in equilibrium price is uncertain.

Decrease in Demand, Increase in Supply (effect)

Lowers the equilibrium price; the change in equilibrium quantity is uncertain.

Increase in Demand, Decrease in Supply (effect)

Raises the equilibrium price; the change in equilibrium quantity is uncertain.