Economics Fundamentals: Demand, Supply, and Market Equilibrium

Vocabulary practice flashcards covering demand, supply, consumer choice, utility, and market equilibrium based on the economics lecture notes.

Normal Good

A good for which an increase in consumer incomes causes demand to shift right.

Inferior Good

A good for which an increase in consumer income causes demand to shift left.

Substitutes

Goods (such as coffee and tea) where a price increase in one leads to a rightward shift in demand for the other.

Complements

Goods (such as printers and ink cartridges) where a substantial price drop in one causes higher demand (a rightward shift) for the other.

Expectations of Price Increases

A factor that causes current demand to shift right as consumers move purchases forward before prices rise.

Budget Constraint Bundle

A combination of goods that fully spends income, such as $3$ meals at $12$ each and $2$ movies at $18$ each using a total budget of $72$.

Marginal Utility

The additional satisfaction gained from consuming one more unit of a good or service.

Diminishing Marginal Utility

The concept that each additional unit consumed typically adds less utility than the previous unit.

Budget Constraint Rotation

The inward movement of a budget line toward a specific axis that occurs when the price of that good rises while income and other prices remain unchanged.

Purchasing Power Effect

The principle that a higher price reduces quantity demanded because the good becomes relatively more expensive and consumer purchasing power falls.

Supply

The amount of a good or service that producers are willing and able to sell at each possible price.

Law of Supply

The law predicting that if the market price rises, ceteris paribus, quantity supplied increases along the same curve.

Supply Curve Shift

A shift in the entire supply curve caused by factors such as changes in input costs or wages, distinct from a movement along the curve.

Raw Material Price Increase Effect

A sharp rise in the price of key production inputs that causes the supply of the final product to shift left.

New Production Technology Effect

An advancement that lowers unit production costs, causing the supply curve to shift right.

Severe Drought Effect

A supply shock that reduces crop yields, shifting crop supply left, causing equilibrium price to rise and quantity to fall.

Market Equilibrium

The state that occurs when quantity demanded equals quantity supplied.

Shortage

A market condition occurring at a price below equilibrium where quantity demanded exceeds quantity supplied, creating upward price pressure.

Surplus

A market condition occurring at a price above equilibrium where quantity supplied exceeds quantity demanded, creating downward price pressure.

Supply Decrease Effect

A market change where supply decreases while demand remains unchanged, leading to a higher equilibrium price and lower equilibrium quantity.

Demand Increase Effect

A market change where demand increases while supply remains unchanged, leading to a higher equilibrium price and higher equilibrium quantity.

Simultaneous Increase in Demand and Supply

A market event where both curves shift right, making an increase in equilibrium quantity the most certain result.

Allocative Efficiency

A state achieved in the basic competitive-market model at equilibrium when $\text{marginal benefit} = \text{marginal cost}$.