Market Forces: Demand and Supply
Chapter 2: Market Forces: Demand and Supply
Ad valoren tax: a percentage tax; the sales tax is a well-known example.
Change in demand: Changes in variables other than the price of a good, such as income or the price of another good, lead to a change in demand. This corresponds to a shift of the entire demand curve.
Change in quantity demanded: Changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along a given demand curve.
Change in quantity supplied: Changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.
Change in supply: Changes in variables other than the price of good, such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.
Complements: Goods for which an increase (decrease) in the price of one good leads to a decrease (increase) in the demand for the other good.
Consumer surplus: The value consumers get from a good but do not have to pay for.
Demand function: A function that describes how much of a good will be purchased at alternative prices of that good and related goods, alternative income levels, and alternative values of other variables affecting demand.
Demand shifter: Variables other than the price of a good that influence demand.
The interaction of supply and demand ultimately determines a competitive price, such that there is neither a shortage nor a surplus of the good. This price is called Equilibrium price and the corresponding quantity, is called the Equilibrium quantity for the competitive market.
Excise tax: a tax on each unit of output sold, where the tax revenue is collected from the supplier.
Full economic price: The dollar amount paid to a firm under a price ceiling, plus the nonpecuniary price.
Inferior good: A good for which an increase (decrease) in income leads to a decrease (increase) in the demand for that good.
Informative advertising: Advertising often provides consumers with information about the existence or quality of a product, which in turn induces more consumers to buy the product.
Law of demand: price and quantity demanded are inversely related.
Lay of supply: as the price of a good rises (falls) and other things remain constant, the quantity supplied of the good rises (falls).
Linear demand function: A representation of the demand function in which the demand for a given good is a linear function of prices, income levels, and other variables influencing demand.
Linear supply function: A representation of the supply function in which the supply of a given good is a linear function of prices and other variables affecting supply.
Nonpecuniary price: The latter price is paid not in dollars but through opportunity cost.
Normal good: A good for which an increase (decrease) in income leads to an increase (decrease) in the demand for that good.
Persuasive advertising: advertising can also influence demand by altering the underlying tastes of consumers.
Price ceiling: The maximum legal price that can be charged in a market.
Price floor: The minimum legal price that can be charged in a market.
Producer surplus: The amount producers receive in excess of the amount necessary to induce them to produce the good.
Shortage: there is not enough of the good to satisfy all consumers willing to purchase it at that price.
Substitutes: Goods for which and increase (decrease) in the price of one good leads to an increase (decrease) in the demand for the other good.
Supply function: A function that describes how much of a good will be produced at alternative prices of that good, alternative input prices, and alternative values of other variables affecting supply.
Supply shifters: Variables that affect the position of the supply curve include the prices of inputs, the level of technology, the number of firms in the market, taxes, and produces expectations.
Surplus: firms are producing more than they can sell at a price of higher level.
Ad valoren tax: a percentage tax; the sales tax is a well-known example.
Change in demand: Changes in variables other than the price of a good, such as income or the price of another good, lead to a change in demand. This corresponds to a shift of the entire demand curve.
Change in quantity demanded: Changes in the price of a good lead to a change in the quantity demanded of that good. This corresponds to a movement along a given demand curve.
Change in quantity supplied: Changes in the price of a good lead to a change in the quantity supplied of that good. This corresponds to a movement along a given supply curve.
Change in supply: Changes in variables other than the price of good, such as input prices or technological advances, lead to a change in supply. This corresponds to a shift of the entire supply curve.
Complements: Goods for which an increase (decrease) in the price of one good leads to a decrease (increase) in the demand for the other good.
Consumer surplus: The value consumers get from a good but do not have to pay for.
Demand function: A function that describes how much of a good will be purchased at alternative prices of that good and related goods, alternative income levels, and alternative values of other variables affecting demand.
Demand shifter: Variables other than the price of a good that influence demand.
The interaction of supply and demand ultimately determines a competitive price, such that there is neither a shortage nor a surplus of the good. This price is called Equilibrium price and the corresponding quantity, is called the Equilibrium quantity for the competitive market.
Excise tax: a tax on each unit of output sold, where the tax revenue is collected from the supplier.
Full economic price: The dollar amount paid to a firm under a price ceiling, plus the nonpecuniary price.
Inferior good: A good for which an increase (decrease) in income leads to a decrease (increase) in the demand for that good.
Informative advertising: Advertising often provides consumers with information about the existence or quality of a product, which in turn induces more consumers to buy the product.
Law of demand: price and quantity demanded are inversely related.
Lay of supply: as the price of a good rises (falls) and other things remain constant, the quantity supplied of the good rises (falls).
Linear demand function: A representation of the demand function in which the demand for a given good is a linear function of prices, income levels, and other variables influencing demand.
Linear supply function: A representation of the supply function in which the supply of a given good is a linear function of prices and other variables affecting supply.
Nonpecuniary price: The latter price is paid not in dollars but through opportunity cost.
Normal good: A good for which an increase (decrease) in income leads to an increase (decrease) in the demand for that good.
Persuasive advertising: advertising can also influence demand by altering the underlying tastes of consumers.
Price ceiling: The maximum legal price that can be charged in a market.
Price floor: The minimum legal price that can be charged in a market.
Producer surplus: The amount producers receive in excess of the amount necessary to induce them to produce the good.
Shortage: there is not enough of the good to satisfy all consumers willing to purchase it at that price.
Substitutes: Goods for which and increase (decrease) in the price of one good leads to an increase (decrease) in the demand for the other good.
Supply function: A function that describes how much of a good will be produced at alternative prices of that good, alternative input prices, and alternative values of other variables affecting supply.
Supply shifters: Variables that affect the position of the supply curve include the prices of inputs, the level of technology, the number of firms in the market, taxes, and produces expectations.
Surplus: firms are producing more than they can sell at a price of higher level.