Economics: Demand and Supply Vocabulary

A set of vocabulary flashcards defining fundamental concepts of demand, supply, elasticity, and consumer behavior based on lecture notes.

Demand

The different quantities of goods that consumers are willing and able to buy at different prices.

The Law of Demand

The inverse law stating that as price increases, the quantity demanded decreases, and vice versa.

Law of Diminishing Marginal Utility

The principle that the extra satisfaction you get from each added unit of good goes down as you use it more.

Income Effect

The phenomenon where if the price goes up for a product, the purchasing power decreases for consumers allowing them to purchase less ("the increase in price means I can't afford it.").

Substitution Effect

The phenomenon where if price goes up for a product, consumers buy less of that product and more of another substitute product ("Why buy an 'A' when airpods would make me happier").

Change in Quantity Demanded

A shift that only occurs when price changes, resulting in a different quantity on the same line.

TIRES

Acronym for the factors causing a change in demand: T - Taste and attitude, I - Income, R - Related goods (substitutes and complements), E - Expectations, S - Size of market (population).

Elasticity of Demand

The degree to which quantity demanded changes as regards to change in price.

Inelastic Demand

Condition that occurs if quantity demanded changes a little with price.

Total Revenue

The total amount of money a business or government earns from selling goods or services before paying any expenses.

Demand

The different quantities of goods that consumers are willing and able to buy at different prices.

The Law of Demand

The inverse law stating that as price increases, the quantity demanded decreases, and vice versa.

Law of Diminishing Marginal Utility

The principle that the extra satisfaction you get from each added unit of a good goes down as you use it more.

Income Effect

The phenomenon where an increase in price reduces consumers' purchasing power, causing them to buy less of the product.

Substitution Effect

The phenomenon where an increase in price leads consumers to buy less of that product and more of a substitute product.

Change in Quantity Demanded

A movement along an existing demand curve caused solely by a change in price.

TIRES

Acronym for non-price factors causing a shift in demand: Taste and attitude, Income, Related goods, Expectations, and Size of market.

Elasticity of Demand

The degree to which quantity demanded changes in response to a change in price.

Inelastic Demand

A condition where quantity demanded changes very little in response to a change in price.

Total Revenue

The total amount of money earned from selling goods or services before paying any expenses.

Supply

The different quantities of a good or service that producers are willing and able to offer for sale at various prices.

The Law of Supply

The economic law stating that as price increases, the quantity supplied increases, and as price decreases, quantity supplied decreases.

Increasing and Diminishing Returns

The production stages where adding variable inputs initially raises output at an increasing rate, but eventually yields smaller incremental additions.

Fixed Cost

Expenses that remain constant regardless of the volume of goods or services produced.

Variable Cost

Expenses that change directly with the level of production output.

Marginal Revenue

The additional revenue earned from producing and selling one more unit of a good.

Change in Quantity Supplied

A movement along the existing supply curve caused solely by a change in price.

Change in Supply

A shift of the entire supply curve caused by changes in non-price determinants of production.

Elasticity of Supply

A measure of how responsive the quantity supplied of a good is to a change in price.

Equilibrium Price

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

Surplus

A market condition that occurs when quantity supplied exceeds quantity demanded, usually when price is above equilibrium.

Shortage

A market condition that occurs when quantity demanded exceeds quantity supplied, usually when price is below equilibrium.

Disequilibrium

A market state where quantity demanded does not equal quantity supplied, leading to a surplus or shortage.

Price Floor

A government-imposed legal minimum price set above equilibrium, below which a good cannot be sold.

Price Ceiling

A government-imposed legal maximum price set below equilibrium, above which a good cannot be sold.

Minimum Wage

A legal price floor on labor that sets the lowest rate employers can pay workers.

Rationing

A system where a central authority allocates scarce goods and services using methods other than market price.