Supply and Demand Flashcards

Flashcards for Microeconomics Lecture 3 on Supply and Demand

Quantity Demanded

The amount of a product consumers wish to purchase at a given price.

Law of Demand

Tendency for quantity demanded to fall as price increases due to income and substitution effects.

Demand Curve

The relationship between quantity demanded and price, assuming all other factors remain constant.

Determinants of Demand

Factors other than price that cause the entire demand curve to shift (e.g., income, prices of related goods, tastes, number of buyers, expectations).

Normal Goods

Goods for which demand increases as income rises.

Inferior Goods

Goods for which demand decreases as income rises.

Substitutes

Goods that can be used in place of each other; an increase in the price of one leads to an increase in demand for the other.

Complements

Goods that are used together; an increase in the price of one leads to a decrease in demand for the other.

Quantity Supplied

The amount of a product that firms wish to supply at a given price.

Law of Supply

Tendency for quantity supplied to rise as price increases.

Supply Curve

The relationship between quantity supplied and price, assuming all other factors remain constant.

Determinants of Supply

Factors other than price that cause the entire supply curve to shift (e.g., input prices, technology, random shocks, number of sellers).

Profit

Firms aim to maximize this; calculated as total revenue minus total costs.

Utility

Satisfaction or benefit that individuals gain from consuming goods and services.

Income Effect

When people feel poorer because they cannot buy as much with their fixed income.

Substitution Effect

When people change their consumption and buy similar but rival products or spend their money on other products.