Economics Chapter on Demand and Supply

A demand function is a mathematical equation that represents the relationship between the quantity demanded of a good and its determinants, such as price, income, and tastes.

The price of a related good that can be used as a substitute for the good in question. For example, the price of a Toyota Altis is a substitute good to a Honda Civic.

A table showing the quantities of a good that a single household would be willing to buy at different prices.

A table that shows the total quantities of a good that all consumers would buy at various prices. It is created by adding up the quantities demanded by each individual household at each price.

Factors that influence a consumer's desire for a good, such as their preferences, income, and the price of related goods.

The quantity demanded of a good falls due to a change in its price.

The quantity demanded of a good falls due to a change in any factor other than price.

Represents a decrease in quantity demanded due to increased price.

The quantity demanded of a good increases due to a fall in price.

Represents an increase in quantity demanded due to a decrease in price.

The entire demand curve shifts to the left, signifying a decrease in demand at every price level.

The quantity demanded of a good increases due to a change in any factor other than price.

The entire demand curve shifts to the right, signifying an increase in demand at every price level.

A table that shows the relationship between the price of a good and the quantity that producers are willing to sell at each price.

A supply schedule that shows the quantities of a good that one producer is willing to sell at different prices.

A supply schedule that shows the quantities of a good that all producers in a market are willing to sell at different prices.

The relationship between price and quantity supplied is positive, meaning as the price of a good increases, the quantity supplied also increases.

A graphical representation of the relationship between the price of a good and the quantity supplied.

The market supply schedule is the sum of all individual supply schedules in a market.

The quantity supplied of a good is determined by the price of the good, the cost of production, and the availability of resources.

Supply schedules are important for understanding market dynamics and the interaction of supply and demand to determine equilibrium prices and quantities.

A graphical representation showing various combinations of two goods that a consumer can afford with their given income and prices.

A curve showing different combinations of two goods that provide the same level of satisfaction to the consumer.

The rate at which a consumer is willing to trade one good for another while remaining at the same level of satisfaction.

The point where the budget line is tangent to the highest attainable indifference curve, representing the combination of goods that maximizes consumer utility.

The slope of the budget line, which shows the price ratio of the two goods.

The condition where the rate at which the consumer is willing to trade one good for another (MRS) is equal to the price ratio of the two goods.

The shape of the indifference curve where it becomes progressively flatter as we move down along the curve. It implies that as we consume more of one good, we are willing to give up less of the other good.

Any combination of goods that lies within the budget line and provides less utility than the equilibrium point.

When the price of a good goes up, producers are incentivized to make more of it. This is because they can make more money per unit sold, which encourages them to produce more.

The law of supply doesn't always hold true. Certain goods have limited or fixed supplies, even when prices rise. This means the quantity produced doesn't change much, even if the price increases.

Agricultural goods like wheat have a fixed supply. Even if the price rises, farmers can't simply produce more wheat overnight. They have limited land and resources, and a fixed harvest cycle.

Perishable goods, like fresh fish, quickly spoil. It's impossible to increase the supply of fish in response to a price increase because it can't be stored for very long.

Luxury or high-end goods have a limited supply by design. Their scarcity is a key part of their appeal, and their high prices are linked to the status associated with them.

The supply curve is a visual representation of the law of supply. It shows the relationship between price and quantity supplied. When the curve slopes upwards, it indicates that producers will supply more as the price increases.

A vertical supply curve indicates a fixed supply. This means that the quantity supplied remains the same, regardless of changes in price.

A supply curve with a horizontal slope, indicating that the quantity supplied changes infinitely regardless of price variations. This represents an extreme theoretical scenario where producers can adjust output instantaneously.

The responsiveness of quantity supplied to a change in price. It measures the percentage change in quantity supplied divided by the percentage change in price.

When ES is greater than 1, implying that the percentage change in quantity supplied is larger than the percentage change in price. This indicates that suppliers are highly responsive to price fluctuations.

When ES is less than 1, indicating that the percentage change in quantity supplied is smaller than the percentage change in price. This implies that suppliers are less sensitive to price variations.

When ES equals 1, meaning the percentage change in quantity supplied is exactly equal to the percentage change in price. This suggests a proportional relationship between supply and price.

A supply curve with a vertical slope, indicating that quantity supplied remains constant regardless of price changes. This implies that producers are unable to adjust output even if prices change drastically.

A method to calculate elasticity of supply at a specific point on the supply curve. It uses the slope of the tangent line at that point, representing the rate of change at that particular price and quantity.

A method to calculate elasticity of supply using the percentage change in quantity supplied and the percentage change in price. Suitable for analyzing changes over a range of prices and quantities.