2. Demand & Supply
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49 Terms
Demand
The amount of a good consumers are willing and able to buy at different prices.
Quantity demanded
The specific amount consumers are willing and able to buy at a particular price.
Law of demand
As price increases, quantity demanded decreases, holding other factors constant.
Supply
The amount of a good producers are willing and able to sell at different prices.
Quantity supplied
The specific amount producers are willing and able to sell at a particular price.
Law of supply
As price increases, quantity supplied increases, holding other factors constant.
Demand shift
A change in demand caused by something other than the good's own price.
Supply shift
A change in supply caused by something other than the good's own price.
Demand increases
The demand curve shifts right; equilibrium price and quantity generally increase.
Demand decreases
The demand curve shifts left; equilibrium price and quantity generally decrease.
Supply increases
The supply curve shifts right; equilibrium price generally decreases and quantity increases.
Supply decreases
The supply curve shifts left; equilibrium price generally increases and quantity decreases.
Normal good
A good for which demand increases when income increases.
Inferior good
A good for which demand decreases when income increases.
Substitutes
Goods that can be used in place of each other.
Complements
Goods that are typically used together.
Movement along demand curve
A change in quantity demanded caused by a change in the good's own price.
Movement along supply curve
A change in quantity supplied caused by a change in the good's own price.
Demand
The amount of a good consumers are willing and able to buy at different prices.
Quantity demanded
The specific amount consumers are willing and able to buy at a particular price.
Law of demand
As price increases, quantity demanded decreases, holding other factors constant.
Supply
The amount of a good producers are willing and able to sell at different prices.
Quantity supplied
The specific amount producers are willing and able to sell at a particular price.
Law of supply
As price increases, quantity supplied increases, holding other factors constant.
Demand shift
A change in demand caused by something other than the good's own price.
Supply shift
A change in supply caused by something other than the good's own price.
Demand increases
The demand curve shifts right; equilibrium price and quantity generally increase.
Demand decreases
The demand curve shifts left; equilibrium price and quantity generally decrease.
Supply increases
The supply curve shifts right; equilibrium price generally decreases and quantity increases.
Supply decreases
The supply curve shifts left; equilibrium price generally increases and quantity decreases.
Normal good
A good for which demand increases when income increases.
Inferior good
A good for which demand decreases when income increases.
Substitutes
Goods that can be used in place of each other.
Complements
Goods that are typically used together.
Movement along demand curve
A change in quantity demanded caused by a change in the good's own price.
Movement along supply curve
A change in quantity supplied caused by a change in the good's own price.
Total revenue formula
Total Revenue=Price×Quantity
Inelastic demand
A condition where quantity demanded changes relatively little in response to a change in price.
Elastic demand
A condition where quantity demanded changes significantly in response to a change in price.
Unit elastic demand
A condition where price changes result in no change to total revenue.
Total revenue test
A method used to determine price elasticity of demand by observing how total revenue changes when price changes.
Price and revenue with inelastic demand
Price and total revenue move in the same direction.
Price and revenue with elastic demand
Price and total revenue move in opposite directions.
Price increase with elastic demand
Total revenue decreases.
Price decrease with elastic demand
Total revenue increases.
Price increase with inelastic demand
Total revenue increases.
Price decrease with inelastic demand
Total revenue decreases.
Same direction in the total revenue test
Price and total revenue move together, indicating that demand is inelastic.
Opposite direction in the total revenue test
Price and total revenue move inversely, indicating that demand is elastic.