Glossary
Consumer Surplus
The monetary benefit consumers receive when they pay a price for a good or service that is less than the maximum price they were willing to pay.
Example:
If you were willing to pay 30, the $20 difference is your consumer surplus.
Deadweight Loss
The loss of total economic surplus (consumer plus producer surplus) that occurs when the market is not at its efficient equilibrium, often due to market distortions.
Example:
If a government imposes a price ceiling on bread, leading to a shortage and fewer loaves being sold than at equilibrium, the lost potential transactions represent deadweight loss.
Decrease in Demand
A leftward shift of the demand curve, indicating that consumers are willing and able to buy less of a good at every given price.
Example:
If a popular celebrity endorses a competing product, there might be a decrease in demand for the original product, causing its price and quantity sold to fall.
Decrease in Supply
A leftward shift of the supply curve, indicating that producers are willing and able to sell less of a good at every given price.
Example:
A major hurricane destroying oil refineries causes a decrease in supply of gasoline, leading to higher gas prices at the pump.
Demand Shifts
A change in the quantity demanded at every possible price, caused by factors other than the good's own price, leading to a new demand curve.
Example:
If a new study shows that eating blueberries is incredibly healthy, the demand curve for blueberries will shift to the right, meaning people want more blueberries at every price.
Disequilibrium
A market condition where the quantity demanded does not equal the quantity supplied, typically occurring when the market price is either too high or too low.
Example:
If a new smartphone is priced too high, leading to many unsold units, the market is in disequilibrium.
Double-Shift Problems (Indeterminate Outcome)
A scenario where both the supply and demand curves shift simultaneously, making the change in either equilibrium price or quantity (or both) uncertain without knowing the relative magnitudes of the shifts.
Example:
If both the demand for electric cars increases (due to environmental awareness) and the supply decreases (due to battery material shortages), the equilibrium price will definitely rise, but the change in equilibrium quantity will be an indeterminate outcome.
Increase in Demand
A rightward shift of the demand curve, indicating that consumers are willing and able to buy more of a good at every given price.
Example:
A sudden trend for vintage clothing causes an increase in demand, leading to higher prices and more sales of retro apparel.
Increase in Supply
A rightward shift of the supply curve, indicating that producers are willing and able to sell more of a good at every given price.
Example:
A bumper harvest of corn due to favorable weather conditions leads to an increase in supply, driving down corn prices.
Market Adjustment
The natural process by which market prices and quantities change in response to shortages or surpluses, moving the market back towards equilibrium.
Example:
When there's a shortage of concert tickets, prices rise, which encourages more tickets to be released or reduces demand, illustrating market adjustment.
Market Equilibrium
The state in a market where the quantity demanded equals the quantity supplied, representing the intersection point of the supply and demand curves.
Example:
When the price of a popular video game is just right, every copy produced is sold, and every gamer who wants one at that price gets it, achieving market equilibrium.
Producer Surplus
The monetary benefit producers receive when they sell a good or service at a price that is higher than the minimum price they were willing to accept.
Example:
A baker was willing to sell a cake for 35, gaining $15 in producer surplus.
Shortage
A market situation where the quantity demanded exceeds the quantity supplied, which occurs when the price is set below the equilibrium price.
Example:
After a viral TikTok, a specific brand of sneakers experiences a shortage as everyone rushes to buy them, but stores quickly run out of stock.
Supply Shifts
A change in the quantity supplied at every possible price, caused by factors other than the good's own price, leading to a new supply curve.
Example:
A technological breakthrough that makes solar panel production cheaper will cause the supply curve for solar panels to shift to the right, meaning more can be produced at each price.
Surplus
A market situation where the quantity supplied exceeds the quantity demanded, which occurs when the price is set above the equilibrium price.
Example:
A clothing store has a surplus of winter coats in July because the demand for heavy outerwear is very low during the summer months.