ECON 101-Unit 2 Vocab

The Supply Curve

A supply curve is a graphical representation showing the relationship between the price of a good and the quantity a seller is willing and able to supply. Usually drawn as an upward-sloping line, it illustrates the law of supply: as prices rise, producers are motivated to supply more, assuming all other factors remain equal.

The Demand Curve

A demand curve is a graphical representation illustrating the inverse relationship between the price of a good or service and the quantity consumers are willing and able to purchase at various price levels.Key CharacteristicsThe Law of Demand: The curve generally slopes downward from left to right. This reflects the economic principle that as the price of a product rises, consumer demand for it decreases (and vice versa), assuming all other variables remain constant (a concept known as ceteris paribus).

The Substitution Effect

The substitution effect is an economic concept where consumers replace a more expensive or less desirable good with a cheaper, comparable alternative when the relative price of the original item rises. It is a primary reason why consumer demand drops when prices increase.

Factors of production (also known as inputs)

Factors of production are the essential inputs used to create goods and services in an economy.

They are classified into four main categories:

1. Land

2. Labor

3. Capital

4. Entrepreneurship

Price Floor

A price floor is a legally established minimum price that can be charged for a good, service, or resource. Typically implemented by governments, they are designed to protect producers by preventing market prices from dropping below a level deemed unfair or unlivable. [1, 2, 3, 4]

Price Ceiling

A price ceiling is a government-mandated legal maximum price that sellers can charge for a particular good or service. Typically enacted to protect consumers by keeping essential items—like rent, utilities, or medicine—affordable, it only restricts the market if it is set below the natural equilibrium price.

Deadweight loss

Deadweight loss is the loss of overall economic welfare that occurs when a market is inefficient. It represents the value of mutually beneficial trades that never happen because a market distortion—such as a tax, price control, or monopoly—forces prices or quantities away from their natural free-market equilibrium.

Excess Surplus

In economics, an excess surplus (commonly called a market surplus or excess supply) is a market imbalance where the quantity of a good or service supplied exceeds the quantity demanded at a prevailing price. This situation typically occurs when the price is artificially set higher than the market equilibrium price.

Inferior Goods

In economics, an inferior good is a product whose demand drops as consumer incomes rise. Instead of reflecting poor quality, these goods represent affordability. As buyers become wealthier, they typically replace these cheaper options with higher-quality or brand-name alternatives.

Complements

In economics, complements are goods or services that are consumed together, meaning the purchase of one directly enhances the utility or demand for the other. Because they go hand-in-hand, a price drop in one item generally boosts the demand for both.

Demand schedule

In economics, a demand schedule is a table that displays the exact quantity of a good or service consumers are willing and able to buy at various price points. It is the tabular foundation used to illustrate the economic law of demand, which dictates that as prices rise, the quantity demanded falls.

Producer Surplus

Producer surplus is the difference between the minimum price a seller is willing to accept for a good and the actual market price they receive.

The law of demand

The downward slope of the demand curve again illustrates the law of demand—the inverse relationship between prices and quantity demanded.

The law of supply

The upward slope of the supply curve illustrates the law of supply—that a higher price leads to a higher quantity supplied, and vice versa.