Economics Chapter 3: Supply and Demand

Study Notes

Demand

Demand reflects the relationship between price and the quantity demanded at various price levels, illustrated with a downward-sloping curve.
Quantity demanded refers to the specific amount consumers are willing to buy at a fixed price.

Substitutes and Complements

Substitutes in consumption allow consumers to switch between goods; a price drop in one can lead to decreased demand for the other.
Complements in consumption mean that a price decrease for one good can increase the demand for another good that is consumed together.

Normal and Inferior Goods

Normal goods see a decrease in demand when consumer income falls; consumers buy less.
Inferior goods experience an increase in demand when income declines; consumers opt for these cheaper alternatives.

Supply

Supply indicates how much producers are prepared to sell at different price points, represented by an upward-sloping curve.
Quantity supplied varies with price, indicating the amount a supplier will offer for sale at a specific price.

Production Relationships

Substitutes in production imply that when the price of one good rises, suppliers shift resources to produce more of that good and less of the alternative.
Complements in production suggest that increased prices for one good can drive up production levels for both related goods.

Market Equilibrium

Market equilibrium is achieved when quantity demanded equals quantity supplied.
Equilibrium price is the specific price point where supply and demand meet.
Equilibrium quantity denotes the number of units sold at the equilibrium price.

Surplus and Shortage

A surplus occurs when the quantity supplied exceeds quantity demanded, leading to excess supply.
A shortage arises when quantity demanded surpasses quantity supplied, creating excess demand.

Description

Test your knowledge on key concepts of supply and demand with these flashcards. This quiz covers essential terms such as demand, quantity demanded, and substitutes in consumption, ensuring a solid understanding of economic principles. Perfect for students studying Economics.