Economics: Key Concepts of Supply and Demand
Key Concepts in Economics: Supply and Demand
Ceteris Paribus:
When changing one variable in a function (e.g., demand for some product), we assume everything else is held constant.
Demand:
The relationship between the price of a certain good or service and the quantity of that good or service someone is willing and able to buy.
Demand Curve:
A graphic representation of the relationship between price and quantity demanded of a certain good or service, with price on the vertical axis and quantity on the horizontal axis.
Demand Schedule:
A table that shows the quantity demanded for a certain good or service at a range of prices.
Law of Demand:
The common relationship that a higher price leads to a lower quantity demanded of a certain good or service, and a lower price leads to a higher quantity demanded, while all other variables are held constant.
Price:
What a buyer pays for a unit of the specific good or service.
Quantity Demanded:
The total number of units of a good or service consumers wish to purchase at a given price.
Complements:
Goods or services that are used together because the use of one enhances the use of the other.
Substitutes:
Goods or services that can be used in place of one another.
Inferior Good:
Good or service whose demand decreases when a consumer’s income increases, and demand increases when income decreases.
Normal Good:
Good or service whose demand increases when a consumer’s income increases, and demand decreases when income decreases.
Law of Supply:
The common relationship that a higher price leads to a higher quantity supplied of a certain good or service, and a lower price leads to a lower quantity supplied, while all other variables are held constant.
Quantity Supplied:
The total number of units of a good or service producers are willing to supply at a given price.
Supply:
The relationship between the price of a certain good or service and the quantity of that good or service producers are willing to offer for sale.
Supply Curve:
A graphic representation of the relationship between price and quantity supplied of a certain good or service, with price on the vertical axis and quantity on the horizontal axis.
Supply Schedule:
A table that shows the quantity supplied for a certain good or service at a range of prices.
Subsidy:
A government payment to firms to encourage production of some good or service.
Efficiency:
When the optimal amount of goods are produced and consumed, minimizing waste.
Equilibrium:
Price and quantity combination where supply equals demand.
Equilibrium Price:
The (only) price where the quantity supplied in a market equals the quantity demanded.
Equilibrium Quantity:
The quantity both supplied and demanded at the equilibrium price.
Shortage (or Excess Demand):
Situation where the quantity demanded in a market is greater than the quantity supplied; occurs at prices above the equilibrium (Qd > Qs).
Surplus (or Excess Supply):
Situation where the quantity demanded in a market is less than the quantity supplied; occurs at prices below the equilibrium (Qd < Qs).
Shift in Demand:
When a change in some economic factor (other than price) causes a different quantity to be demanded at every price.
Shift in Supply:
When a change in some economic factor (other than price) causes a different quantity to be supplied at every price.