Glossary
Demand (as a shift)
Refers to the entire demand curve shifting, indicating a change in consumers' willingness or ability to buy at every price point due to non-price factors.
Example:
A new health report praising the benefits of blueberries would cause an increase in demand for blueberries, shifting the entire curve to the right.
Demand Curve
The demand curve represents the total of all individual demands at various price points, illustrating the relationship between price and quantity consumers are willing to buy.
Example:
When graphing the market for sneakers, the demand curve slopes downward, showing that fewer pairs are bought at higher prices.
Equilibrium Price
The specific price at which the quantity demanded equals the quantity supplied, found at the intersection of the supply and demand curves.
Example:
If the equilibrium price for a popular video game is $60, then at that price, there are no shortages or surpluses in the market.
Equilibrium Quantity
The specific quantity at which the quantity demanded equals the quantity supplied, found at the intersection of the supply and demand curves.
Example:
When the equilibrium quantity of concert tickets is 10,000, it means exactly 10,000 tickets are bought and sold at the equilibrium price.
Law of Demand
As price increases, quantity demanded decreases, and vice versa, reflecting the inverse relationship between price and consumer purchasing behavior.
Example:
The Law of Demand explains why, when the price of concert tickets soared, fewer fans were willing to purchase them.
Law of Supply
As price increases, quantity supplied increases, and vice versa, motivating businesses to produce more when prices are high to maximize profit.
Example:
The Law of Supply means that if the price of avocados goes up, farmers will be incentivized to grow and sell more of them.
Market Equilibrium
The point where the supply and demand curves intersect, signifying that the quantity consumers want to buy equals the quantity producers want to sell.
Example:
In a perfectly competitive market for smartphones, the market equilibrium is achieved when the number of phones consumers want to buy matches the number manufacturers are willing to sell.
Price Ceiling
A government-imposed maximum price that can be charged for a good or service, typically set below the equilibrium price to make goods more affordable.
Example:
A price ceiling on apartment rents in a city could lead to a shortage of available apartments, as landlords are less incentivized to offer units.
Price Floor
A government-imposed minimum price that can be charged for a good or service, set above the equilibrium price to support producers.
Example:
A price floor set on milk above its market equilibrium price might lead to a surplus of milk as farmers produce more than consumers demand at that higher price.
Quantity Demanded
Refers to a specific amount consumers are willing and able to buy at a particular price, represented as a single point on the demand curve.
Example:
If a coffee shop lowers its latte price from 4, the quantity demanded might increase from 100 to 150 lattes per day.
Quantity Supplied
Refers to a specific amount producers are willing and able to sell at a particular price, represented as a single point on the supply curve.
Example:
When the price of rare coins rises, the quantity supplied by collectors willing to sell their treasures increases significantly.
Shortage
A situation where the quantity demanded exceeds the quantity supplied at a given price, typically occurring when the price is below equilibrium.
Example:
When a new gaming console is released and demand far outstrips the available stock, there is a shortage of consoles, leading to long lines and high resale prices.
Supply (as a shift)
Refers to the entire supply curve shifting, indicating a change in producers' willingness or ability to sell at every price point due to non-price factors.
Example:
A technological breakthrough that makes solar panel production cheaper would lead to an increase in supply, shifting the entire curve to the right.
Supply Curve
The supply curve is the sum of all individual suppliers at different price points, showing how much of a product is available at various prices.
Example:
A rising supply curve for electric vehicles indicates that manufacturers are willing to produce more cars as their selling price increases.
Surplus
A situation where the quantity supplied exceeds the quantity demanded at a given price, typically occurring when the price is above equilibrium.
Example:
If a toy company produces 10,000 action figures but only 7,000 are sold at the current price, there is a surplus of 3,000 action figures.