Supply, demand, market equilibrium, efficiency

ECON 1030 Unit 3

market

any place where, or mechanism by which, buyers and sellers interact to trade goods, services, or resources

good

a tangible product that consumers, firms, or governments wish to purchase

service

an intangible product or action that consumers, firms, or governments wish to purchase

resource

the inputs used to produce goods and services; also known as factors of production. resources fall into four categories: land, labor, capital, and entrepreneurial ability

law of demand

a principle in economics that states that as the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa, all else held constant.

demand schedule

a tabular representation of the relationship between the price of a good, service, or resource, and the quantities consumers are willing and able to buy over a fixed time period, all else held constant

demand curve

a graphical representation of the relationship between the price of a good, service, or resource, and the quantities consumers are willing and able to buy over a fixed time period, all else held constant

quantity demanded

the quantity of a good, service, or resource that consumers are willing and able to buy at a given price

income effect

the effect that a change in the price of a good, service, or resource has on the purchasing power of income (price decrease, purchasing power increase)

substitution effect

the effect that a change in the price of one good, service, or resource has on the demand for another

diminishing marginal utility

the negative relationship between the quantity of a good, service, or resource and the marginal utility obtained from each additional unit consumed in a given period of time

market demand

the total demand for a good, service, or resource. it represents the horizontal summation of the quantities demanded by individuals , firms, or even nations at each price over a fixed time period, all else held constant

Movement Along the Demand Curve

A change in the quantity of a good, service, or resource demanded due to a change in its price. Graphically, this change is represented as a movement along an existing demand curve.

Change (Shift) in Demand

A change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a rightward shift of the demand curve, while a decrease in demand is represented by a leftward shift of the demand curve.

Inferior Good

A good for which there is an inverse relationship between the demand for the good and income. For inferior goods, an increase in income decreases demand, and a decrease in income increases demand; a good with a negative income elasticity of demand.

Normal Good

A good for which there is a direct relationship between the demand for the good and income. For normal goods, an increase in income increases demand, and a decrease in income decreases demand; a good with a positive income elasticity of demand.

Tastes and Preferences

The perception of the desirability associated with consuming a good, service, or resource.

Buyers

Market participants who seek to obtain goods, services, and resources.

Expectations

The anticipation by individuals and firms of costs and benefits that lie in the future.

Substitutes

Goods, services, or resources that are viewed as replacements for one another.

Complements

Goods, services, or resources that are used or consumed with one another.

Law of Supply

A principle in economics that states that as the price of a good, service, or resource rises, the quantity supplied will increase, and vice versa, all else held constant.

Diminishing Marginal Productivity

The principle that if at least one input of production is fixed, the marginal productivity of additional variable resources will eventually fall, all else held constant.

Supply Schedule

A tabular representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant.

Supply Curve

A graphical representation of the relationship between the price of a good, service, or resource and the quantities producers are willing and able to supply over a fixed time period, all else held constant.

Quantity Supplied

The quantity of a good, service, or resource that producers are willing and able to supply at a given price.

Market Supply

The overall, or total, supply of a good, service, or resource. It represents the horizontal summation of the quantities supplied by individuals, firms, states, or even nations at each price over a fixed time period, all else held constant.

Change (Shift) in Supply

A change in the quantity of a good, service, or resource supplied at every price. Graphically, an increase in supply is represented by a rightward shift of the supply curve, while a decrease in supply is represented by a leftward shift of the supply curve

Movement along the Supply Curve

A change in the quantity of a good, service, or resource supplied due to a change in its price. Graphically, this change is represented as a movement along an existing supply curve

Subsidy

A payment made by the government that does not necessarily require an exchange of economic activity in return. Subsidies most often take the form of payments to businesses.

Tax

A payment made to government that is the result of economic activity. Taxes are generally collected from both individuals and firms.

Resources

The inputs used to produce goods and services; also known as factors of production. Resources fall into one of four categories: land, labor, capital, and entrepreneurial ability.

Technology

The knowledge, inventions, and innovations that can potentially increase resource productivity.

Sellers

Market participants who are willing and able to sell goods, services, or resources.

Seller Expectations

The anticipated future outcomes, including prices, that sellers associate with the production of a good, service, or resource.

Equilibrium Price

The price at which the quantity supplied of a good, service, or resource equals the quantity demanded; the price at which the demand and supply curves intersect. Also known as the market-clearing price.

Equilibrium Quantity

The quantity traded when the quantity supplied of a good, service, or resource equals its quantity demanded.

Shortage

A situation in which the quantity demanded is greater than the quantity supplied at the current market price. Also called excess demand.

Surplus

A situation in which the quantity supplied is greater than the quantity demanded at the current market price. Also called excess supply.

Nonprice Determinant (Demand)

A characteristic of the demand for a good, service, or resource other than its own market price. A change in a nonprice determinant of demand changes the relationship between price and quantity demanded, either increasing or decreasing quantity demanded at every price. Sometimes referred to as non-ownprice determinant.

Change (Shift) in Demand

A change in the quantity of a good, service, or resource demanded at every price. Graphically, an increase in demand is represented by a rightward shift of the demand curve, while a decrease in demand is represented by a leftward shift of the demand curve.

Nonprice Determinant (Supply)

A characteristic of the supply of a good, service, or resource other than its own market price. A change in a nonprice determinant of supply changes the relationship between price and quantity supplied, either increasing or decreasing quantity supplied at every price. Sometimes referred to as non-own-price determinant

Change (Shift) in Supply

A change in the quantity of a good, service, or resource supplied at every price. Graphically, an increase in supply is represented by a rightward shift of the supply curve, while a decrease in supply is represented by a leftward shift of the supply curve.

Consumer Surplus

The difference between the maximum price consumers are willing and able to pay for a good or service and the price they actually pay. Consumer surplus also can be thought of as the wealth that trade creates for consumers in a market.

Welfare Economics

A branch of economics that focuses on measuring the welfare of market participants and how changes in the market change their well-being.

Producer Surplus

The difference between the price producers receive for a good or service and the minimum price they are willing and able to accept. Producer surplus also can be thought of as the wealth that trade creates for producers in a market.

Economic Surplus

The sum of consumer and producer surplus; a measure of the total welfare, or wealth, that trade creates for consumers and producers in a market. Also known as social welfare or total surplus.

Deadweight Loss

The value of the economic surplus that is forgone when a market is not allowed to adjust to its competitive equilibrium.

Productive Efficiency

Producing output at the lowest possible average total cost of production; using the fewest resources possible to produce a good or service

Allocative Efficiency

Producing the goods and services that are most wanted by consumers in such a way that their marginal benefit equals their marginal cost.

Price Ceiling

A maximum legal price at which a good, service, or resource can be sold

Excise Tax

A tax based on the number of units purchased, not on the price paid for a good or service