Chapter 3, 4: Supply and Demand market efficiency and market failure

Market

A place where buyers and sellers meet, which can be physical or online.

Law of Demand

When the price increases, quantity demanded decreases; when the price decreases, quantity demanded increases.

Demand Schedule

A table showing how much people will buy at different prices.

Demand Curve

A graph showing the relationship between price and quantity demanded.

Market Demand

The total demand from all buyers.

Substitutes

Goods that can replace each other; if the price of one goes up, demand for the other increases.

Complements

Goods that are used together; if the price of one goes up, demand for both decreases.

Normal Goods

Goods for which demand increases when income increases.

Inferior Goods

Goods for which demand decreases when income increases.

Change in Demand

A shift in demand caused by factors other than price.

Law of Supply

When price increases, quantity supplied increases; when price decreases, quantity supplied decreases.

Supply Schedule

A table showing how much sellers will offer at different prices.

Supply Curve

A graph showing the relationship between price and quantity supplied.

Market Supply

The total supply from all sellers.

Change in Supply

A shift in supply caused by factors other than price.

Market Equilibrium

The point when quantity demanded equals quantity supplied.

Equilibrium Price

The price where supply and demand are balanced.

Consumer Surplus

The difference between what a consumer is willing to pay and the actual price paid.

Producer Surplus

The difference between the lowest price a seller would accept and the actual price received.

Deadweight Loss

A loss of economic efficiency that occurs when markets are not in equilibrium.

Price Ceiling

A legal limit on how high a price can be set, often leading to shortages.

Price Floor

A legal limit on how low a price can be set, often leading to surpluses.

Externality

A cost or benefit affecting people not directly involved in a market.

Negative Externality

Harmful effects that impact third parties, such as pollution.

Positive Externality

Beneficial effects that impact third parties, such as education.

Tradable Emissions Permits

A system where companies can buy or sell permits to pollute, aimed at limiting overall pollution.