demand and supply Flashcards
(13 cards)
What is the definition of Demand?
Ability and willingness to purchase a given good or service at each given price level, ceteris paribus
What is Quantity demanded?
Quantity of a good/service demanded at a particular price (Note: Quantity demanded is NOT Demand)
What is Supply?
Ability and willingness to produce and sell a given good or service at each given price level, ceteris paribus
What is Quantity supplied?
Quantity of a good/service supplied at a particular price (Note: Quantity supplied is NOT Supply)
What is Market equilibrium?
When quantity demanded = quantity supplied at a particular price, such that there are no shortages and surpluses and neither consumers nor producers have an incentive to deviate from the price or quantity traded
What is the Price mechanism?
The system where the forces of demand and supply determine the prices of goods and services. It has three functions: signaling, incentive and rationing.
What is a Shortage?
When quantity demanded (Qd) exceeds quantity supplied (Qs) at a particular price
What is a Surplus?
When quantity supplied (Qs) exceeds quantity demanded (Qd) at a particular price
What is Allocative efficiency?
when resources are distributed in such a way that no one can be made better off without making someone else worse off.
What is Productive efficiency?
When a firm produces at the lowest point on its average total cost (ATC) curve.
What is Society’s welfare?
Well-being of consumers and producers, measured by the sum of consumer and producer surplus
What is Consumer surplus?
The difference between the maximum price that consumers are willing to pay for a good and the price that is actually paid
What is Producer surplus?
The difference between the minimum price that producers are willing to charge for a good and the price that is actually received
