Demand, Supply, and Market Equilibrium – Key Vocabulary

40 vocabulary flashcards covering the core terms from the lecture on demand, supply, determinants, market equilibrium, and price controls.

Demand

The amount of a good or service that consumers are willing and able to purchase at various prices during a given period.

Effective Demand

Demand that is backed by purchasing power; represents actual planned purchases.

Potential Demand

Desire to buy a good or service that is NOT backed by the ability to pay.

Demand Extension

Increase in quantity demanded caused solely by a fall in the good’s own price, other factors constant.

Demand Contraction

Decrease in quantity demanded caused solely by a rise in the good’s own price, other factors constant.

Quantity Demanded

The specific number of units a consumer will buy at one particular price in a given time period.

Demand Schedule

A table showing quantities a consumer (or market) will purchase at different prices.

Demand Curve

A graphical representation of the inverse relationship between price and quantity demanded.

Law of Demand

States that, ceteris paribus, the quantity demanded of a good falls when its price rises and rises when its price falls.

Determinants of Demand

Non-price factors that shift the demand curve: income, tastes, population, prices of related goods, price expectations, occasion, etc.

Substitute Good

A product that can replace another; demand for one rises when the price of the other increases.

Complementary Good

A product consumed jointly with another; demand falls when the price of its complement rises.

Normal Good

A good whose demand increases as consumer income rises.

Inferior Good

A good whose demand decreases as consumer income rises.

Shift in Demand Curve

A change in demand caused by non-price determinants, moving the entire curve left or right.

Change in Quantity Demanded

Movement along a demand curve due to a price change of the good itself.

Ceteris Paribus

Latin for “all other things being equal”; assumption isolating the effect of one variable.

Market Demand

The horizontal sum of all individual consumers’ demand curves in a market.

Supply

The amount of a good or service that producers are willing and able to sell at various prices during a given period.

Supply Extension

Increase in quantity supplied resulting from a rise in the good’s own price, other factors constant.

Supply Contraction

Decrease in quantity supplied resulting from a fall in the good’s own price, other factors constant.

Quantity Supplied

The specific number of units a producer will offer for sale at one particular price in a given time period.

Supply Schedule

A table showing quantities a firm (or market) will supply at different prices.

Supply Curve

A graphical representation of the positive relationship between price and quantity supplied.

Law of Supply

States that, ceteris paribus, the quantity supplied of a good rises when its price rises and falls when its price falls.

Determinants of Supply

Non-price factors that shift the supply curve: technology, input costs, number of sellers, taxes & subsidies, weather, etc.

Technology (as a Determinant)

Improvements that lower production costs and shift the supply curve rightward.

Cost of Production

Expenses for inputs; higher costs shift supply left, lower costs shift supply right.

Number of Sellers

More sellers increase market supply; fewer sellers decrease it.

Taxes and Subsidies

Taxes raise production costs and reduce supply; subsidies lower costs and increase supply.

Shift in Supply Curve

A change in supply caused by non-price determinants, moving the entire curve left or right.

Change in Quantity Supplied

Movement along a supply curve due to a price change of the good itself.

Market Supply

The horizontal sum of all individual firms’ supply curves in a market.

Market Equilibrium

The price-quantity point where quantity supplied equals quantity demanded; no tendency for price to change.

Equilibrium Price

The price at which market equilibrium occurs; clears both excess demand and excess supply.

Excess Demand (Shortage)

Situation where quantity demanded exceeds quantity supplied at the current price, causing upward pressure on price.

Excess Supply (Surplus)

Situation where quantity supplied exceeds quantity demanded at the current price, causing downward pressure on price.

Price Control

Government-mandated maximum or minimum legal price for a good or service.

Price Ceiling

A legally imposed maximum price at which a good can be sold; set below equilibrium to be effective.

Price Floor

A legally imposed minimum price at which a good can be sold; set above equilibrium to be effective.