Supply & Demand Basics
This occurs when the quantity buyers want equals the quantity sellers offer.
What is equilibrium
When consumers switch to a cheaper alternative after a price increase.
What is the substitution effect
Increase in purchases with a lack of production causes a
What is a shortage
A market with many sellers, identical products, and no barriers to entry.
What is perfect competition
A rightward shift of the supply curve represents this change.
What is an increase in supply
A situation where there is more product available than consumers are willing to buy.
What is a surplus
Demand that barely changes even when price increases significantly.
What is inelastic demand
Decrease in purchases with too much production causes a
What is a surplus
A market controlled by a single seller with significant price control.
What is a monopoly
An increase in production costs will cause supply to shift in this direction.
What is a leftward shift
When prices rise and producers respond by increasing output, this principle is at work.
What is the law of supply
The principle that each additional unit consumed gives less satisfaction than the previous one.
What is the law of diminishing marginal utility?
The removal of government restrictions on businesses.
What is deregulation
A business owned by two or more individuals who share profits and risks.
What is a partnership
If consumers expect higher prices in the future, demand today will do this.
What is increase
Factors like income, tastes, or expectations that shift demand without changing price are called this.
What are determinants of demand
When consumers buy less of something because their purchasing power has decreased due to higher prices.
What is the income effect
Government rules that influence how businesses operate.
What is regulation
A business with limited liability that can sell stock to raise capital.
What is a corporation
When a new competitor enters a market, which determinant of supply changes?
What is the number of sellers
A condition where market price is not at equilibrium, causing imbalances in supply and demand.
What is disequilibrium?
A good that people will continue to buy even if prices rise sharply (e.g., insulin).
What is an inelastic good
In a market economy, goods and services are primarily distributed using this
What is price
A market where firms compete but differentiate their products (ex: branding, materials).
What is monopolistic competition
The price of a product increases from $10 to $15. As a result, the quantity demanded decreases from 100 units to 70 units.
What is the price of elasticity of demand and is it elastic, inelastic, or unitary?
0.6 → Inelastic