key terms 3

Ceteris Paribus

A Latin phrase meaning 'other things being equal.'

Complements

Goods that are often used together, where the consumption of one enhances the consumption of the other.

Consumer Surplus

The extra benefit consumers receive from buying a good or service, calculated as the difference between what they were willing to pay and what they actually paid.

Deadweight Loss

The loss in social surplus that occurs when a market produces an inefficient quantity.

Demand

The relationship between price and the quantity demanded of a certain good or service.

Demand Curve

A graphic representation of the relationship between price and quantity demanded, with quantity on the horizontal axis and price on the vertical axis.

Demand Schedule

A table that shows a range of prices for a good or service and the quantity demanded at each price.

Economic Surplus

Also known as social surplus.

Equilibrium

The situation where quantity demanded is equal to quantity supplied, with no economic pressures to change price or quantity.

Equilibrium Price

The price at which quantity demanded equals quantity supplied.

Equilibrium Quantity

The quantity at which quantity demanded and quantity supplied are equal at a certain price level.

Excess Demand

When quantity demanded exceeds quantity supplied at the existing price; also known as a shortage.

Excess Supply

When quantity supplied exceeds quantity demanded at the existing price; also known as a surplus.

Factors of Production

Resources such as labor, materials, and machinery used to produce goods and services.

Inferior Good

A good for which quantity demanded falls as income rises, and rises as income falls.

Inputs

Resources such as labor, materials, and machinery used to produce goods and services; also called factors of production.

Law of Demand

The principle that higher prices lead to lower quantity demanded, and lower prices lead to higher quantity demanded, while all other variables remain constant.

Law of Supply

The principle that higher prices lead to greater quantity supplied, and lower prices lead to lower quantity supplied, while all other variables remain constant.

Normal Good

A good for which quantity demanded rises as income rises, and falls as income declines.

Price

The amount a buyer pays for a unit of a specific good or service.

Price Ceiling

A legal maximum price.

Price Control

Government regulations that set prices instead of allowing market forces to determine prices.

Price Floor

A legal minimum price.

Producer Surplus

The extra benefit producers receive from selling a good or service, calculated as the price received minus the price they would have been willing to accept.

Quantity Demanded

The total number of units a good or service consumers are willing to purchase at a given price.

Quantity Supplied

The total number of units a good or service producers are willing to sell at a given price.

Shift in Demand

A change in some economic factor (other than price) causing a different quantity to be demanded at every price.

Shift in Supply

A change in some economic factor (other than price) causing a different quantity to be supplied at every price.

Shortage

When quantity demanded exceeds quantity supplied at the existing price; also known as excess demand.

Social Surplus

The sum of consumer surplus and producer surplus.

Substitute

A good that can replace another to some extent, leading to greater consumption of one good resulting in less consumption of the other.

Supply

The relationship between price and the quantity supplied of a certain good or service.

Supply Curve

A line that shows the relationship between price and quantity supplied on a graph.

Supply Schedule

A table showing a range of prices for a good or service and the quantity supplied at each price.

Surplus

When quantity supplied exceeds quantity demanded at the existing price; also known as excess supply.

Total Surplus

Also referred to as social surplus.