Microeconomics 2
Basics of Supply and Demand
Basics of Supply and Demand
Supply curve
Relationship between the quantity (x) of a good that producers are willing to sell and the price (y) of the good
demand curve
Relationship between the quantity of a good that
consumers are willing to buy and the price of the good.
substitutes
Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other.
complements
Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.
equilibrium (market clearing price)
Price that equates the quantity supplied to the quantity demanded.
market mechanism
Tendency in a free market for price to change until the market clears.
surplus
Situation in which the quantity supplied exceeds the quantity demanded.
shortage
Situation in which the quantity demanded exceeds the quantity supplied.
elasticity
percentage change in one variable resulting from a 1-percent increase in another.
price elasticity of demand
Percentage change in quantity demanded of a good resulting from a 1-percent increase in its price.
infinitely elastic demand
Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.
income elasticity of demand
Percentage change in the quantity demanded resulting from a 1-percent increase in income.
cross-price elasticity of demand
Percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of another.
price elasticity of supply
Percentage change in quantity supplied resulting from a 1-percent increase in price.
point elasticity of demand
Price elasticity at a particular point on the demand curve.
arc elasticity of demand
Price elasticity calculated over a range of prices.
market
Collections of buyers and sellers that through their actual or potential interactions, determine the price of a good.
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Flashcards
Supply curve
Relationship between the quantity (x) of a good that producers are willing to sell and the price (y) of the good
demand curve
Relationship between the quantity of a good that
consumers are willing to buy and the price of the good.
substitutes
Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other.
complements
Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.
equilibrium (market clearing price)
Price that equates the quantity supplied to the quantity demanded.
market mechanism
Tendency in a free market for price to change until the market clears.
surplus
Situation in which the quantity supplied exceeds the quantity demanded.
shortage
Situation in which the quantity demanded exceeds the quantity supplied.
elasticity
percentage change in one variable resulting from a 1-percent increase in another.
price elasticity of demand
Percentage change in quantity demanded of a good resulting from a 1-percent increase in its price.
infinitely elastic demand
Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.
income elasticity of demand
Percentage change in the quantity demanded resulting from a 1-percent increase in income.
cross-price elasticity of demand
Percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of another.
price elasticity of supply
Percentage change in quantity supplied resulting from a 1-percent increase in price.
point elasticity of demand
Price elasticity at a particular point on the demand curve.
arc elasticity of demand
Price elasticity calculated over a range of prices.
market
Collections of buyers and sellers that through their actual or potential interactions, determine the price of a good.
