Chapter 3 Supply and Demand

complements in production

Two goods are complements in production when an increase in the price of one of these goods results in greater production of both goods.

supply

how much suppliers are willing to supply at any given price. It is a graphical representation of supply schedule which slopes upward.

quantity supplied

how much suppliers will sell at a given price depends on price of good.

complements in consumption

two goods are complements if a decrease in the price of one good causes an increase in the demand for the other.

inferior good

good is an inferior good if a decrease in income causes an increase in the demand for the good.

demand

how much is demanded at every given price. It is a graphical representation of demand schedule which slopes downward (price vertical, quantity demanded horizontal).

equilibrium price

is the price where quantity demanded equals quantity supplied.

equilibrium quantity

quantity at which equilibrium occurs.

equilibrium

quantity demanded = quantity supplied

surplus (excess supply)

quantity supplied is greater than quantity demanded of a good.

shortage (excess demand)

quantity supplied of the good is less than the quantity demanded of the good.

quantity demanded

the amount demanded at a given price depends on the price of the good.

substitutes in production

Two goods are substitutes in production when an increase in the price of one of these goods results in greater production of this good and reduced production of the other good.

normal good

a good is normal if a decrease in income causes a decrease in demand for the good.

substitutes in consumption

two goods are substitutes if a decrease in the price of one good causes a decrease in demand for the other.