ECO113 Chapter 4: The Market Forces of Supply and Demand

Flashcards covering key vocabulary related to the market forces of supply and demand, including definitions of laws, determinants, and market conditions.

Law of Demand

The principle that, ceteris paribus, when the price of a good rises, the quantity demanded falls; and when the price falls, the quantity demanded increases.

Substitutes (Law of Demand Explanation)

As the price of one good falls, it becomes cheaper relative to another similar good, influencing consumers to purchase more of the cheaper good.

Purchasing Power (Law of Demand Explanation)

The increased ability of consumers to buy more goods with the same income when prices are lower.

Demand Schedule

A table showing the relationship between the price of a good and the quantity demanded per period of time, ceteris paribus.

Demand Curve

A diagram showing the inverse relationship between the price of a good and the quantity demanded, which typically slopes downward.

Market Demand

The horizontal summation of individual demands, representing the total quantity demanded by all consumers at each price level.

Substitute Goods

Two goods that are very similar and can be replaced for one another; an increase in the price of one good increases demand for the other.

Complementary Goods

Goods that are consumed together; an increase in the price of one good reduces demand for the other.

Normal Good

A good for which demand increases in response to a higher income.

Inferior Good

A good for which demand falls in response to a higher income.

Taste (Preference)

A determinant of demand reflecting changes in consumer liking or disliking for a product.

Expectation of Future (Demand Determinant)

Consumers' beliefs about future income or prices that influence their current purchasing decisions.

Number of Buyers (Demand Determinant)

An increase in the total number of consumers in the market, leading to an increase in overall market demand.

Changes in Demand (Shift)

A shift in the entire demand curve caused by a change in any determinant of demand other than the good's own price.

Changes in Quantity Demanded (Movement)

A movement along a stationary demand curve, caused solely by a change in the good's own price.

Supply

A schedule or curve showing the amounts of a product a producer is willing and able to produce and make available for sale at a series of prices over a given period.

Law of Supply

The principle that, ceteris paribus, as the price of a good rises, the quantity supplied rises; and as the price falls, the quantity supplied falls.

Supply Curve

A diagram showing the positive relationship between the price of a good and the quantity supplied, which typically slopes upward.

Resource Prices (Supply Determinant)

The cost of inputs used in production; higher resource prices reduce supply due to increased costs, while lower prices increase supply.

Technology (Supply Determinant)

Improvements in production methods that enable firms to produce more output with the same resources, leading to an increase in supply.

Taxes and Subsidies (Supply Determinant)

Government policies where taxes increase production costs and reduce supply, while subsidies reduce costs and provide an incentive to increase supply.

Price of Other Goods (Supply Determinant)

If the price of other goods increases, producers may switch production to those goods to increase profits, affecting the supply of the original good.

Expectation (Supply Determinant)

Producers' beliefs about future prices that influence their current willingness to supply goods.

Number of Sellers (Supply Determinant)

The total count of producers in the market; a larger number of sellers generally leads to a greater market supply.

Changes in Supply (Shift)

A shift in the entire supply curve caused by a change in any determinant of supply other than the good's own price.

Changes in Quantity Supplied (Movement)

A movement along a stationary supply curve, caused solely by a change in the good's own price.

Market Equilibrium

The state in a market where the quantity demanded by consumers equals the quantity supplied by producers, determining the market price and quantity.

Surplus (Excess Supply)

A market condition where the quantity supplied of a good exceeds the quantity demanded at a given price (S > D).

Shortage (Excess Demand)

A market condition where the quantity demanded of a good exceeds the quantity supplied at a given price (D > S).