Glossary
Complements
Goods that are typically consumed together; if the price of one complement falls, the demand for the other typically increases.
Example:
When the price of hot dogs decreases, people might buy more hot dog buns, as they are complements.
Demand
The quantity of a good or service that consumers are willing and able to purchase at various prices during a specific period.
Example:
When a new video game console is released, the high consumer interest and purchasing power demonstrate strong demand for the product.
Equilibrium
The market state where the quantity demanded equals the quantity supplied, resulting in a stable market price and quantity.
Example:
In a perfectly balanced market, the price of concert tickets reaches an equilibrium where every seat is sold and no one is left wanting a ticket at that price.
Expectations of Future Prices (Demand)
A non-price determinant of demand where consumers' beliefs about future price changes influence their current purchasing decisions.
Example:
If consumers anticipate a major sale on electronics next month, their current expectations of future prices might lead them to delay purchases.
Expectations of Sellers
A non-price determinant of supply where producers' beliefs about future price changes influence their current willingness to supply goods.
Example:
If car manufacturers expectations of sellers indicate that car prices will rise next quarter, they might hold back some inventory now to sell later at a higher profit.
Inferior Goods
Goods for which demand decreases as consumer income rises, and increases as income falls.
Example:
When a student gets a well-paying job after graduation, they might stop buying instant ramen, indicating it was an inferior good for them.
Movement Along the Curve
A change in quantity demanded or supplied caused solely by a change in the good's own price, represented as a shift from one point to another on the same demand or supply curve.
Example:
When a store lowers the price of a popular video game, there is a movement along the curve as more units are demanded at the new, lower price.
Normal Goods
Goods for which demand increases as consumer income rises, and decreases as income falls.
Example:
As people earn more money, they might choose to buy more expensive organic produce, making it a normal good.
Number of Buyers
A non-price determinant of demand indicating that an increase in the population or market size will generally lead to higher demand.
Example:
A new housing development attracting many families to a town will likely increase the number of buyers for local school supplies.
Number of Sellers
A non-price determinant of supply indicating that an increase in the quantity of firms producing a good will generally lead to higher market supply.
Example:
The entry of several new coffee shops into a neighborhood increases the overall number of sellers and thus the supply of coffee.
Prices of Related Products (Supply)
A non-price determinant of supply where changes in the price of goods that can be produced using similar resources affect the supply of the original product.
Example:
If the prices of related products like corn increase significantly, a farmer might shift land from soybean production to corn, decreasing soybean supply.
Resources (Price)
A non-price determinant of supply referring to the cost of inputs used in production; higher resource prices decrease supply.
Example:
An unexpected surge in the price of resources like lumber would make building new homes more expensive, decreasing the supply of houses.
Shift of the Curve
A change in demand or supply caused by a non-price determinant, resulting in an entirely new demand or supply curve.
Example:
A sudden trend for vintage sneakers causes a shift of the curve to the right for vintage sneaker demand, meaning more are demanded at every price.
Subsidies
Government payments to producers that reduce their production costs, typically leading to an increase in supply.
Example:
A government subsidy for solar panel manufacturers would encourage more production, increasing the supply of renewable energy.
Substitutes
Goods that can be used in place of one another; if the price of one substitute falls, the demand for the other typically decreases.
Example:
If the price of Netflix subscriptions drops significantly, some consumers might choose it over Hulu, making them substitutes.
Supply
The quantity of a good or service that producers are willing and able to offer for sale at various prices during a specific period.
Example:
After a successful harvest, farmers have a large supply of corn available to sell in the market.
Tastes of Consumers
A non-price determinant of demand referring to changes in consumer preferences or desires for a good or service.
Example:
If a popular influencer starts promoting vintage clothing, the tastes of consumers might shift, increasing demand for retro styles.
Taxes
Government levies on goods or services that increase production costs for sellers, typically leading to a decrease in supply.
Example:
An increase in the taxes on sugary drinks would likely reduce the supply of sodas as producers face higher costs.
Technology
A non-price determinant of supply referring to advancements or breakdowns in production methods that affect efficiency and output.
Example:
The development of new, faster microchip manufacturing technology allows companies to produce more chips at a lower cost, increasing supply.