Introduction to Demand and Supply

These flashcards cover key concepts related to demand and supply in economics, including definitions, laws, and market behavior.

Market

An arrangement for bringing buyers and sellers together.

Barter system

A system where goods or services are exchanged directly for other goods or services.

Double coincidence of wants

A situation in a barter system where two parties each hold an item the other wants.

Law of demand

An inverse relationship between the price of a good and the quantity demanded.

Change in demand

A shift in the demand curve due to factors other than price.

Market demand

The total amount demanded by all individuals in the market.

Determinants of demand

Factors that can cause changes in demand including tastes, prices of related goods, income, number of consumers, and future expectations.

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 consumed together; an increase in the price of one leads to a decrease in demand for the other.

Law of supply

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

Change in quantity supplied

A movement along the supply curve due to a change in the price of the good.

Change in supply

A shift in the supply curve due to factors other than price.

Market supply

The total supply of all producers in the market combined.

Determinants of supply

Factors that can cause changes in supply, such as resource prices, technology, producer expectations, number of producers, and prices of related goods.

Equilibrium price

The price at which the quantity demanded equals the quantity supplied.

Surplus

A situation where the quantity supplied exceeds the quantity demanded.

Shortage

A situation where the quantity demanded exceeds the quantity supplied.

Price ceiling

A legally mandated maximum price for a product.

Price floor

A legally mandated minimum price for a product.

Government intervention

Actions taken by the government to affect the economy, such as price controls.

Consumer equilibrium

A state where consumers are satisfied with the quantity purchased at a given price.

Producer equilibrium

A state where producers are satisfied with the quantity supplied at a given price.

Demand curve

A graphical representation showing the relationship between price and quantity demanded.

Supply curve

A graphical representation showing the relationship between price and quantity supplied.

Horizontal summation

The method of combining individual demand or supply curves to get the market demand or supply.

Price elasticity of demand

A measure of how much the quantity demanded responds to a change in price.

Price elasticity of supply

A measure of how much the quantity supplied responds to a change in price.

Income effect

The change in quantity demanded due to a change in consumer income.

Substitution effect

The change in quantity demanded due to a change in the price of a substitute good.

Market clearing price

The price at which the quantity supplied equals the quantity demanded.

Consumer surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer surplus

The difference between what producers are willing to accept and what they actually receive.

Market failure

A situation where the allocation of goods and services is not efficient.

Price control

Government regulation on the maximum or minimum price of a commodity.