Economics - Market Equilibrium and Policy

Non-price Determinant of Demand

A characteristic of the demand for a good, service or resource other than its own market. A change in a nonprice determinant changes the relationship between price and quantity demanded, either increasing or decreasing quantity demanded at every price

Nonprice Determinant (Supply)

A characteristic of the supply of a good, service, or resource other than its own market price. A change in a nonprice determinant changes the relationship between price and quantity supplied, either increasing or decreasing quantity supplied at every price

Price Ceiling

A maximum legal price at which a good, service, or resource can be sold

Nonbinding Price Ceiling

A maximum legal price that is set above the existing equilibrium price. Because the market equilibrium price is lower than the price ceiling the price ceiling has no effect on the market

Binding Price Ceiling

A maximum legal price that is set below the existing equilibrium price. Because the market equilibrium price is higher than the price ceiling, the ceiling restricts trade

Price Floor

A minimum legal price at which a good, service or resource can be sold

Binding Price Floor

A minimum legal price that is set above the existing equilibrium price. Since the market equilibrium price is lower than the price floor, the floor restricts trade

Nonbinding Price Floor

A minimum legal price that is set below the existing equilibrium price. Since the market equilibrium price is greater than the price floor, the floor has no effect on the market

Shortage

A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price

Surplus

A situation in which the quantity of output supplied is greater than the quantity of output demanded at the current market price

Excise Tax

A tax on a good or service that depends on the units sold, not the price of the good or service

Change in Demand

An increase or decrease in the quantity demanded of a good, service, or resource at every price.

Change in Supply

An increase or decrease in the quantity supplied of a good, service, or resource at every price.

Minimum Wage

The lowest wage firms can legally pay employees in the labor market

Equilibrium Price

The price at which the quantity supplied of a good, service, or resource, equals the quantity demanded. AKA market-clearing price

Equilibrium Quantity

The quantity traded when the quantity supplied of a good, service, or resource equals its quantity demanded