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Demand curve
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A function that shows the quantity demanded at different prices
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Quantity demanded
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The quantity that buyers are willing and able to buy at a particular price
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Consumer surplus
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The consumer's gain from exchange, or the difference between the maximum price a consumer is willing to pay for a certain quantity and the market price
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Total consumer surplus
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Measured by the area beneath the demand curve and above the price
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Normal good
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A good for which demand INCREASES when income increases
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Inferior good
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A good for which demand DECREASES when income increases
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Substitutes
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A decrease in the price of one good lead to a DECREASE in demand for the other good
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Complements
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A decrease in the price of one good lead to an INCREASE in demand for the other good
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Supply curve
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A function that shows the quantity supplied at different prices
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Quantity supplied
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The amount of a good that sellers are willing and able to sell at a particular price
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Producer surplus
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The producer's gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity
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Total producer surplus
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Measured by the area above the supply curve and below the price
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Surplus
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A situation in which the quantity supplied is GREATER than the quantity DEMANDED
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Shortage
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A situation in which the quantity demanded is GREATER than the quantity SUPPLIED
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Equilibrium price
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The price at which the quantity demanded is EQUAL to the quantity SUPPLIED
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Equilibrium quantity
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The quantity at which the quantity demanded is EQUAL to the quantity SUPPLIED
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Elasticity of demand
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Measures how responsive the quantity demanded is to a change in price
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Inelastic
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When the absolute value of the elasticity of demand is LESS than one
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Elastic
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When the absolute value of the elasticity of demand is GREATER than one
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Unit elastic
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When the absolute value of the elasticity of demand is EQUAL to one
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Elasticity of supply
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Measures how responsive the quantity supplied is to a change in price
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Cross-price elasticity of demand
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Measures how responsive the quantity demanded of good A is to the price of good B
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Income elasticity of demand
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Measures how responsive the quantity demanded of a good is to changes in income
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