Unit 2 - Supply & Demand Model

Flashcards covering key vocabulary and concepts from lecture notes about Supply & Demand.

Supply and Demand

A foundational concept in economics where many aspects of markets can be simplified.

Law of Demand

States that as the price of a good increases, consumers will purchase less of it.

Complementary Goods

Goods typically purchased together; if the price of one increases, demand for the other may fall.

Substitute Goods

Goods that are often purchased instead of another, typically in response to price fluctuations.

Demand Curve

A visual representation of demand, with price on the y-axis and quantity on the x-axis.

Algebraic Representation of Demand

Representing demand using mathematical equations, allowing for the inclusion of multiple variables.

Elasticity

Measure of how much quantity demanded changes due to a change in price.

Elastic Goods

Goods with demand that is very sensitive to price changes.

Inelastic Goods

Goods with demand that is not very sensitive to price changes.

Law of Supply

The higher the price of a good, the more suppliers are willing to supply.

Equilibrium

A steady state where no agent can become better off by changing their action.

Supply & Demand Equilibrium

Occurs where the quantity supplied equals the quantity demanded.

Price Taking

Agents in the market cannot influence market prices.

Identical Products

All goods transacting in the market must be considered identical.

Full Information

All agents in the market must have full information about the price and quality of the goods.

Surplus

An agent’s surplus is the amount they value something above what they paid for it.

Consumer Surplus

The area above the price line and below the demand curve.

Producer Surplus

The area beneath the price line but above the supply curve.

Deadweight Loss

Surplus that is removed due to intervention in the market (e.g., taxes) and is now lost.