Markets: Demand, Supply, Equilibrium, Shortages, Surpluses - Vocabulary Flashcards

Vocabulary flashcards covering key terms and concepts from the lecture notes on how markets work, including signals, equilibrium, shortages, surpluses, demand/supply concepts, and the mechanics of shifts and slides.

Free Enterprise System

An economic system based on private ownership of resources where private parties decide what to produce, how to produce, and for whom, guided by market signals rather than government planning.

Market Signals

Information conveyed by prices, profits, and losses that guide buyers’ and sellers’ decisions in markets.

Equilibrium

The price at which quantity demanded equals quantity supplied; the market clears with no inherent pressure for price to change.

Shortage

A situation where at the current price, quantity demanded exceeds quantity supplied, creating upward pressure on the price.

Surplus

A situation where at the current price, quantity supplied exceeds quantity demanded, creating downward pressure on the price.

Disequilibrium

Any market state where the quantity demanded does not equal the quantity supplied (shortages or surpluses exist).

Demand

The entire relationship showing the maximum quantity buyers are willing and able to buy at each price during a specific time period (ceteris paribus).

Quantity Demanded

The actual number of units buyers are willing to purchase at a specific price.

Supply

The entire relationship showing the maximum quantity sellers are willing and able to offer at each price during a specific time period (ceteris paribus).

Quantity Supplied

The actual number of units sellers are willing to offer at a specific price.

The Price (Slider)

The price of the good itself; movement along the demand and supply curves as price changes.

Shifter

A factor that changes the position of a demand or supply curve (a non-price determinant).

Slider

The price of the good itself; the sole slider in this course that causes movement along curves.

Demand Shifter

Non-price factors that increase or decrease demand, shifting the demand curve left or right.

Supply Shifter

Non-price factors that increase or decrease supply, shifting the supply curve left or right.

Five-Step Method

A five-step framework for predicting price and quantity changes when market conditions change.

Recalibration / rebound effect

The adjustment by buyers or sellers along the curve in response to a price change.

Demand increases

A non-price increase in demand; the demand curve shifts right, raising both price and quantity in the new equilibrium.

Demand decreases

A non-price decrease in demand; the demand curve shifts left, lowering both price and quantity in the new equilibrium.

Supply increases

A non-price increase in supply; the supply curve shifts right, lowering price and raising quantity in the new equilibrium.

Supply decreases

A non-price decrease in supply; the supply curve shifts left, raising price and lowering quantity in the new equilibrium.

Elasticity (Pivoter)

A pivoting effect where the slope of the curve changes; determinants of elasticity; affects magnitude, not direction in this course.

Direction vs Magnitude

In this course, we focus on the direction (up or down) of changes, not the exact magnitude.

Demand vs Quantity Demanded

Demand is the entire curve; quantity demanded is the specific amount purchased at a given price.

Supply vs Quantity Supplied

Supply is the entire curve; quantity supplied is the specific amount offered at a given price.

Market Equilibrium (P, Q)

The point where the market price P* and quantity Q* satisfy Qd = Qs; no inherent pressure to change.

Market Disequilibrium Graphs

Graphs showing a temporary state where a shift causes a shortage or surplus before a new equilibrium is reached.

Rationing function of prices

Prices allocate scarce resources efficiently by signaling how to ration goods when supply and demand are unbalanced.

Ceteris Paribus

Latin for 'all else equal'—holding other variables constant while analyzing the effect of one change.

Law of Demand

As the price of a good falls, the quantity demanded tends to rise; as price rises, quantity demanded tends to fall.

Law of Supply

As the price of a good rises, the quantity supplied tends to rise; as price falls, quantity supplied tends to fall.