Market Forces of Supply and Demand – VOCABULARY Flashcards (Chapter 4)

Vocabulary terms from the chapter on supply and demand, including definitions of market concepts, determinants of demand and supply, shifts vs movements, and equilibrium.

Market

A group of buyers and sellers of a particular good or service; buyers determine demand and sellers determine supply.

Competitive market

A market with many buyers and many sellers, each having negligible impact on the market price.

Perfectly competitive market

A market where goods are identical and price takers are so numerous that no single buyer or seller can affect the price.

Price takers

Participants in a market who cannot influence the market price because there are many buyers and sellers.

Demand

The quantity of a good that buyers are willing and able to purchase.

Quantity demanded

The amount of a good that buyers are willing and able to purchase at a given price.

Law of demand

Other things equal, as the price falls, the quantity demanded rises; as the price rises, the quantity demanded falls.

Demand schedule

A table showing the relationship between the price of a good and the quantity demanded.

Demand curve

A graph of the relationship between the price of a good and the quantity demanded.

Market demand

The sum of all individual demands for a good or service; the market demand curve is obtained by horizontally summing individual demands.

Shifts in the demand curve

Caused by non-price determinants of demand, leading to a change in demand at every price.

Non-price determinants of demand

Factors other than price that affect demand, including income, prices of related goods, number of buyers, tastes, and expectations.

Number of buyers

A determinant of demand; more buyers increase demand and shift the demand curve right.

Income (in relation to demand)

Income changes affect demand; normal goods rise with income, inferior goods fall with income.

Prices of related goods (demand)

Prices of substitutes and complements can shift demand for a good.

Tastes

Preferences that can increase or decrease demand for a good, shifting the curve.

Expectations (demand)

If people expect higher future income or prices, current demand can rise.

Shift vs. movement along the curve

A shift is a non-price determinant changing the curve; a movement along a fixed curve occurs when price changes.

Supply

The quantity of a good that sellers are willing and able to offer for sale.

Quantity supplied

The amount of a good that sellers are willing and able to sell at a given price.

Law of supply

Other things equal, as the price rises, the quantity supplied rises; as the price falls, the quantity supplied falls.

Supply schedule

A table showing the relationship between the price of a good and the quantity supplied.

Supply curve

A graph of the relationship between the price of a good and the quantity supplied.

Market supply

The sum of the supplies of all sellers of a good or service; the market supply curve is the horizontal sum of individual supply curves.

Shifts in the supply curve

Changes in non-price determinants of supply that cause the entire supply curve to move.

Input prices

Prices of factors used to produce goods; lower input prices increase supply (shift right).

Technology

Advances that reduce production costs; improve efficiency and shift the supply curve right.

Number of sellers

More sellers increase market supply and shift the curve right.

Expectations about the future (supply)

If producers expect higher future prices or scarcity, they may reduce current supply (left shift).

Shifts vs. movements in supply

A shift changes the curve due to non-price determinants; a movement along a fixed curve occurs when price changes.

Equilibrium (market)

The price and quantity where quantity supplied equals quantity demanded.

Surplus

Excess supply; QS > QD at a given price, leading sellers to cut prices to clear the excess.

Shortage

Excess demand; QD > QS at a given price, leading sellers to raise prices to clear the excess.

Price gouging

Legal price controls in crises; in the notes, such laws could raise social welfare by preventing excessive price spikes.

Three-step method for analyzing changes in equilibrium

1) Determine whether the event shifts supply, demand, or both; 2) Determine the direction of the shift; 3) Compare the new equilibrium to the initial one.

Market equilibrium (summary concept)

The balance point where prices adjust so that quantity supplied equals quantity demanded, guiding resource allocation.