Demand, Supply & Equilibrium; Price Floors & Price Ceilings
income
Normal good: A good for which the demand increases as income rises and decreases as income falls Inferior good: A good for which the demand increases as income falls, and decreases as income rises
competitive market equilibrium
A market equilibrium with many buyers and many sellers.
shortage
A situation in which the quantity demanded is greater than the quantity supplied
surplus
A situation in which the quantity supplied is greater than the quantity demanded
market equilibrium
A situation where quantity demanded equals quantity supplied.
price ceiling
A legally determined maximum price that sellers may charge.
price floor
A legally determined minimum price that sellers may receive.
The Law of Demand
Holding everything else constant (ceteris paribus), when the price of a product falls, the quantity demanded of the product will rise, and when the price of a product rises, the quantity demanded of the product will fall.
law of supply
Holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.
substitution effect
The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes
income effect
The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumer purchasing power
market demand
The demand for a product by all the consumers in a given geographical area
demand schedule/curve
table/curve that shows relationship between the price of product and quantity of product demanded
price of related goods
substitutes: goods/services that can be used for the same purpose (apple and orange) complements: goods that are used together (burger and fries)
What explains the law of demand
substitution and income effect
demographics
the characteristics of a population with respect to age, race, and gender
