AP Microeconomics Demand and Supply

Goods that are consumed together, such as cars and gasoline or peanut butter and jelly.

People who buy goods and services. Often a household is considered to be a fundamental unit of consumption.

The difference between the equilibrium price in the market and the price consumers are actually willing to pay for a good or service. On a graph, []is represented as the area beneath the demand curve, above the price paid, and to the left of the quantity purchased.

The percentage change in the quantity demanded for one good divided by the percentage change in the price of a related good. [] determines whether goods are complements (if negative) or substitutes (if positive).

The loss of consumer and producer surplus that occurs when a quantity other than the equilibrium quantity prevails in the market. [] results from over- or underproduction of a good and is associated with allocative inefficiency.

The willingness and ability of consumers to buy goods and services at the various prices that exist in the market within a specified time frame. Describes the inverse relationship between the quantity demanded and the price that is often expressed as a graphical curve or a tabular schedule.

The factors that cause demand to either increase or decrease. The [] include: market size, expected prices, related prices, income, and tastes.

The factors that cause supply to either increase or decrease. The [] include: technology, related prices, input prices, competition, government taxes and subsidies, and expected prices.

Each additional unit of a good or service that is consumed gives less additional satisfaction or utility than the previous unit that was consumed. One of the reasons why price and quantity demanded have an inverse relationship.

A [] is a legal maximum price set below the equilibrium price. This results in the quantity demanded exceeding the quantity supplied at the ceiling price. Hence a shortage exists in the market.

A [] is a legal minimum price set above the equilibrium price. This results in the quantity supplied exceeding the quantity demanded at the floor price. Hence a surplus exists in the market.

The sensitivity of quantity changes relative to changes in other factors, often prices.

Describes a rate of change in quantity that is greater (in percentage terms) than the rate of change in price.

The condition that exists in the market when a single price and quantity result from the intersection of supply and demand. The natural price-quantity combination at which neither a shortage nor a surplus exists.

A per-unit tax on the production of a good or service. [] tend to reduce supply, decreasing quantity of a good that is sold and increasing the price that buyers pay.

Consumers' buying power changes inversely to changes in price. This is one reason for the inverse relationship expressed in the law of demand. Consumers buy fewer units at higher prices because their same nominal income has less purchasing power.

The percentage change in the quantity demanded divided by the percentage change in consumers' income. Measures whether and how much buying increases (typically) or decreases (unusual in cases of less-desirable goods) when income rises. [] determines whether goods are normal (if positive) or inferior (if negative).

Describes a rate of change in quantity that is less (in percentage terms) than the rate of change in price.

A good whose demand varies inversely with consumers' incomes.

The price and quantity demanded of a good are inversely related because of income effect, substitution effect, and diminishing marginal benefits.

The cost of producing each additional unit of a good or service incurs a greater cost than the previous unit. Results from the need to use resources that are less and less well-suited to production of that good as quantity produced increases.

The price and quantity supplied of a good are directly related. Higher prices induce increased production quantities.

A good whose demand varies directly with consumers' incomes.

A maximum price for a good or service that cannot be legally exceeded.

The responsiveness of quantity changes relative to price changes; the percentage change of quantity demanded divided by the percentage change in price.

The percentage change in quantity supplied divided by the percentage change in the price of a good or service.

A minimum price for a good or service that cannot be legally undermined.

People who make and sell goods and services; suppliers.

The difference between the market equilibrium price and the price producers would willingly accept for a good or service. On a graph, [] is represented by the area beneath the price received, above the supply (or marginal cost) curve, and to the left of quantity sold.

The amount of a good or service that consumers are willing and able to buy at a given price in a specified period of time.

The amount of a good or service that producers are willing and able to sell at a given price in a specified period of time.

The condition that exists when the quantity demanded exceeds the quantity supplied. Indication of price being lower than equilibrium level.

Goods which are used in place of each other. For example, margarine is a substitute for butter.

The tendency of consumers to substitute lower-priced items for higher-priced items. A reason why the law of demand is true; consumers purchase fewer units at higher prices because substitutes (whose prices are unchanged) seem relatively cheaper.

The willingness and ability of producers to offer a good or service for sale at the various prices which exist in the market within a certain time frame. The positive or direct relationship between quantity supplied and price that is often displayed on a graphical curve or in a tabular schedule.

An upward-sloping curve that illustrates producers' willingness and ability to bring units of a good or service to market during a particular time period.

The condition that exists when the quantity supplied exceeds the quantity demanded. Indication of price being higher than equilibrium level.

The price of a good or service multiplied by the quantity sold. Total receipts a firm takes in from selling its finished goods and services.

A test for price elasticity of demand. If price changes vary directly with total revenue, then the demand is inelastic. If price changes vary inversely with total revenue, then the demand is elastic. If price changes do not cause a change in total revenue, then demand is unit elastic.

Describes percentage change in quantity that is equal to percentage change in price.

The want-satisfying power that goods and services provide. The amount of usefulness or satisfaction that a consumer gets from consuming a good or service.

A downward-sloping curve that illustrates consumers' demand for goods and services at various prices.