Supply and Demand

These flashcards cover key concepts related to supply and demand, market equilibrium, elasticity, and shifts in supply and demand curves.

Market

A market is characterized by a specific product or service being bought and sold, location, and point in time.

Supply

The combined amount of a good that all producers in a market are willing to sell.

Demand

The combined amount of a good that all consumers in a market are willing to buy.

Demand Curve

Describes the relationship between the quantity of a good that consumers demand and the good’s price, assuming all other factors are constant.

Market Equilibrium

Occurs when the price of a good results in the quantity demanded equaling the quantity supplied.

Excess Supply

Occurs when quantity supplied exceeds quantity demanded at a given price.

Excess Demand

Occurs when quantity demanded exceeds quantity supplied at a given price.

Shift in Demand Curve

A change in demand that leads to a shift of the entire demand curve as a result of a non-price factor.

Shift in Supply Curve

A change in supply that leads to a shift of the entire supply curve as a result of a non-price factor.

Elasticity

Unit-less measure that describes the sensitivity of quantity demanded or supplied to changes in price, income, or the price of related goods.

Price Elasticity of Demand

Percentage change in quantity demanded divided by the percentage change in price.

Inelastic Demand

Demand is inelastic if 0 < |ED| < 1.

Unit Elastic Demand

Demand is unit elastic if |ED| = 1.

Elastic Demand

Demand is elastic if |ED| > 1.

Perfectly Elastic Demand

Demand is perfectly elastic if |ED| = ∞.

Perfectly Inelastic Demand

Demand is perfectly inelastic if |ED| = 0.

Income Elasticity of Demand

Percentage change in quantity demanded divided by the percentage change in income.

Cross-Price Elasticity of Demand

Percent change in quantity demanded of one good divided by the percent change in price of another good.

Market Shift Factors

Factors that can shift demand curve include number of consumers, wealth or income, consumer tastes, prices of related goods.

Choke Price

The price at which consumers demand zero quantity of a good.