Chapter 3: Demand, Supply, and Market Equilibrium

Schedule/curve showing various amounts of product that consumers willing + able to buy at several possible prices during a specific period of time

Illustrates quantity demanded of a good or service at different prices

Other things equal, as price falls, the quantity demanded rises (and vice versa)

Each successive unit of product consumed → Buyers get less satisfaction

Lower price increases purchasing power of income → Buyer can purchase more of product than before (and vice versa)

Buyer has incentive to substitute less expensive products for similar products that are relatively more expensive

Quantity demanded on horizontal axis, price on vertical axis; downward slope reflects law of demand

Other factors besides price that affect purchases; shifts the demand curve

Rise in income causes increase in demand

Rise in income causes decrease in demand

Increase in price of one related good → Demand for other good increases

Increase in price of one related good → Demand for other good decreases

Shift of demand curve to right/left

Movement from one point to another on a fixed demand curve

Schedule/curve showing various amounts of product that producers are willing + able to make available for sale at several possible prices during a specific period of time

Illustrates quantity supplied of a good or service at different prices

Other things equal, as price rises, the quantity supplied rises (and vice versa)

Upward sloping; reflects law of supply

Other factors besides price that affect supply; shifts supply curve

Shift of supply curve to right/left

Movement from one point to another on a fixed supply curve

Price where quantity demanded = quantity supplied

Quantity demanded and quantity supplied at the equilibrium price

Quantity supplied exceeds quantity demanded; drives prices down

Quantity demanded exceeds quantity supplied; drives prices up

Production of a good in the least-costly way

Production of the particular mix of goods and services most highly valued by society

Maximum legal price a seller can charge for a good or service

Minimum legal price a seller can charge for a good or service