Demand, Supply, and Markets

Capital: The factories, machines, tools, and inventories in an economy. (Education is sometimes referred to as human capital; factories, machines, etc., as physical capital.) Capital is used in producing other goods and services.

Ceteris paribus: Latin for “with other conditions remaining the same." In economics, we use this to underline that no other variables are changing.

Complementary goods: Goods that are used together. When the price of one good increases, the demand for its complementary good decreases.

Demand: The quantities of a good that buyers are willing and able to buy at each of a series of prices, assuming that all possible influencing factors other than price remain constant. Demand is often shown in a table called a schedule or in graphical form.

Economic model: An abstract description of a part of an economy. Simplifying assumptions are made, with a goal of understanding and explaining economic events.

Equilibrium: A market is in equilibrium, with an equilibrium price and an equilibrium quantity, when the quantity demanded equals the quantity supplied.

Equilibrium price: The market price where the quantity demanded and quantity supplied are equal. Equilibrium price will not change until something else changes.

Equilibrium quantity: The market quantity where the quantity demanded and quantity supplied are equal. Equilibrium quantity will not change until something else changes.

Inferior goods: A good is inferior if, in response to an increase in income, individuals decrease their consumption of the good.

Inputs: The resources - labor, land, and capital - businesses use in producing goods and services. Those resources are often described as factors of production.

Law of demand: The principle that price and quantity demanded are inversely related. A decrease in price, assuming nothing else changes, will cause an increase in the quantity demanded and an increase in price will cause a decrease in the quantity demanded. The law of demand implies a negatively sloped demand curve.

Law of supply and demand: Prices and quantities in a competitive market will tend toward equilibrium levels where the quantity supplied equals the quantity demanded.

Markets: Methods through which buyers and sellers come together and determine the prices and quantities of goods and services that will be exchanged.

Movements along a demand curve: A change in quantity demanded caused by a change in a good's price.

Movements along a supply curve: A change in quantity supplied caused by a change in a good's price.

Normal goods: A good is normal if, in response to an increase in income, individuals increase their consumption of the good.

Quantity demanded: The quantity of a good or service that consumers intend to purchase in a given time period at a specific price.

Quantity supplied: The quantity of a good or service that producers intend to sell throughout a given time period at a certain price.

Shift in the demand curve: A change in the quantities consumers are willing and able to purchase at each price. The shift is caused by changes other than a change in price. For instance, changes in income, tastes, expectations, the number of potential buyers, and prices of substitute and complementary goods may lead to shifts in demand.

Shift in the supply curve: A change in the quantities producers are willing and able to sell at each price. The shift is caused by changes other than a change in price. For instance, rising labor costs (a price of an input) cause a shift to the left of the supply curve (a decrease in supply). Changes in prices of other inputs or changes in technology will also shift the supply curve.

Shortage: At a single price, the quantity demanded is greater than the quantity supplied.

Substitute goods: Goods that can used in place of one another. When the price of one increases, the demand for a substitute good increases.

Supply: A table (schedule) or graph (curve) showing the quantity of a good that producers are willing to supply at each price, assuming that all possible influencing factors other than price remain constant.

Surplus: At a single price, the quantity supplied is greater than the quantity demanded.