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1. Market: a group of producers and

consumers who exchange a good or
service for payment.
2. Competitive market: a market in which
there are many producers and consumers
of the same good or service and none of
them can influence
3. Supply and demand model: a model of
how a competitive market works. 5 key
elements of this model are supply curve,
demand curve, set of factors that can cause
supply or demand curve to shift, market
equilibrium( equilibrium price and
equilibrium quantity) and the way market
equilibrium changes when supply or
demand curve shifts.
4. Demand: the quantity of goods or services
people are willing and able to buy. The
higher the price, the lower the demand.
5. Demand schedule: the table showing how
much of a good or service people are
 willing and able to buy at different prices.

6. Quantity demanded: the actual amount of

a good or service consumers are willing
and able to buy at a specific price
7. Demand curve: is the curve connecting the
points on demand schedule together

8. The law of demand: the higher price for a

good or service, (all other things are
equal), will lead people to demand a
smaller quantity of the good or service. If
other things are not equal, the demand
 curve will shift.
9. Change in demand: the shift of demand
curve, which changes the quantity
demanded at any given price.
10. Movement along the demand curve: the
change in quantity demanded that is the
result of change in price.

11. Five factors cause demand curve to shift:

1. Change in prices of related goods or
services (substitutes and
complements)
2. Change in incomes
3. Change in taste
4. Change in expectation
5. Change in number of consumers
12. Substitute: a pair of goods that serve
similar functions. The rise in price of one
good will make people buy the other good
instead of it and lead to the rise in demand
of the other good.

13. Complements: a pair of goods that are

consumed together. The fall in price of one
good leads to the rise in demand for the
other good.
14. When individuals have more income, they
are more likely to buy goods at any price.
So, the rise in income will cause the
demand curve of normal goods to shift to
the right.
15. Inferior goods: if the rise in income will
decrease the demand for these goods, they
are inferior goods. Inferior goods are less
desirable than more expensive ones.
16. When taste changes in favor of a good, the
demand curve will shift to the right
17. If people expect the price of a good will
 rise in the future, the demand for it will
increase. If people expect their income to
rise, the demand for goods will increase.
18. Individual demand curve: the relationship
between quantity demanded and price for
an individual. At any price, the quantity
demanded by the market is the sum of the
quantity demanded by all individuals.
19. Quantity supplied: the actual amount of a
good or service producers are willing to
sell at a specific price
20. Supply schedule: a table showing how
much of a good or service producers will
sell at different prices
21. Supply curve shows the relationship
between quantity supplied and price
22. Law of supply: other things being equal,
higher price leads to higher quantity
supplied.
23. Change in supply: shift of supply curve,
which changes the quantity supplied at any
given price.
24. Movement along the supply curve: change
in the quantity supplied that is the result of
change in price
25. Shift of supply curve is the result of five
factors
1. Change of prices of related goods and
services
2. Change of inputs price
3. Change of technology
4. Change of expectations
5. Change of number of producers

26. Fall in price of substitutes and rise in price

of complements will cause quantity
supplied of a good to increase.
27. Input: anything that is used to produce a
good or service. Rise in input prices will
cause quantity supplied to decrease
because producers need to pay more to
produce it.
28. Technology: the method to turn input to
output. Better technology can help
 producers to spend less input on the same
output, so it can increase the supply.
29. If producers expect the price to rise in the
future, the supply today will decrease.
30. Individual supply curve: the relationship
between quantity supplied and price for an
individual producer. The quantity supplied
to the market is the sum of quantity
supplied by all individual producers.
31. Equilibrium: no individual would be better
off by doing something different

32. A competitive market is in equilibrium

when the price move to a level where
quantity demanded equals to quantity
supplied. The
33. price is equilibrium price (market clearing
price) and the quantity is equilibrium
quantity.
34. Surplus: quantity supplied exceeds
quantity demanded. Surplus occurs when
 price is above the equilibrium price.
35. Shortage: quantity demanded exceeds
quantity supplied. Shortage occurs when
price is below the equilibrium price.
36. When there is a surplus, some producers
lower their price to compete, so price falls.
37. When demand for a good or service
increases, the equilibrium price and the
equilibrium quantity of the good or service
both rise
38. When demand for a good or service
decreases, the equilibrium price and the
equilibrium quantity of the good or service
both fall.
39. When supply of a good or service
decreases, the equilibrium price of the
good or service rises and the equilibrium
quantity falls
40. When supply of a good or service
increases, the equilibrium price of the
good or service falls and the equilibrium
quantity of the good or service rises.
41. When demand increases and supply
decreases, the equilibrium price rises but
the change in the equilibrium quantity is
ambiguous.
42. When demand decreases and supply
increases, the equilibrium price falls but
the change in the equilibrium quantity is
ambiguous.
43. When both demand and supply increase,
the equilibrium quantity increases but the
change in equilibrium price is ambiguous.
44. When both demand and supply decrease,
the equilibrium quantity decreases but the
change in equilibrium price is ambiguous.
45. Price control: legal restriction on how high
or how low the market price can go.
46. Price ceiling: maximum price producers
are allowed to charge. If it is below the
equilibrium price, it will cause shortage.
The reason is movement along the demand
and supply curve. It will also cause
inefficient allocation to consumers. People
 who are especially eager to get a good and
willing to pay a high price may not get
one, but people who are not so eager and
only willing to pay a low price can get
one.
47. Wasted resources: people expend their
money, efforts and time coping with
shortage caused by price ceiling
48. Inefficiently low quality: sellers offer low
quality goods at a low price because of the
price ceiling even though buyers would
prefer a higher quality at a higher price.
49. black market: a market in which goods or
services are bought and sold illegally—
either because it is illegal to sell them at
all or because the prices charged are
legally prohibited by a price ceiling.
People need to buy goods from a black
market because of shortage caused by
price ceiling.
50. The price of goods people buy from a
black market is higher than equilibrium
 price. Price ceiling cause consumers to
pay a higher price.
51. Price floor: minimum price consumers are
required to pay.
52. Minimum wage: a legal floor on the wage
rate( price of labor)
53. The price floor will have no effect if it’s
below the equilibrium price.
54. If the price floor is above equilibrium
price, it will cause surplus.
55. Inefficiently low quantity: because the
price rises, demand for the good decrease
and quantity will be below equilibrium
quantity.
56. Inefficient allocation of sales among
sellers: sellers who want to sell their goods
at a lower price are not allowed and they
cannot sell their goods because of the
surplus.
57. Wasted resources: the extra goods will be
wasted and sellers spend more time
looking for consumers
58. Inefficiently high quality: sellers offer
high-quality goods to compete with other
sellers at a high price, even though buyers
would prefer a lower quality at a lower
price.
59. Black labor: worker are willing to work
for payment below minimum wage and
conceal the employment from the
government.
60. Quantity control (quota): upper limit on
the quantity of goods or services that can
be bought or sold.
61. License: give its owner the right to supply
a good or service. Only people with
license can supply this kind of good.
62. Demand price: the demand price of a
quantity is the price at which people will
demand that quantity.
63. Supply price: the supply price of a
quantity is the price at which producers
will supply that quantity.
64. Quota will cause demand price to be
 higher than supply price.
65. Quota rent: the difference between
demand price and supply price. It’s the
earning of license holders from renting
their license. It’s also the market price of
license.
66. Deadweight loss: lost gains associated
with transections that do not occur due to
market intervention.