Markets bring together buyers and sellers to establish an equilibrium price for a good or service. Demand is the willingness to buy a product at a given price, depicted by a downward sloping demand curve. Supply is the willingness of producers to provide a product at a given price, depicted by an upward sloping supply curve. The equilibrium price is where the supply and demand curves intersect and the quantity demanded equals the quantity supplied. Price ceilings set a maximum price and can cause shortages. Price floors set a minimum price and can cause surpluses.
2. Market Market: where buyers (consumers) and sellers (producers) come together to establish an equilibrium price and quantity for a good or service. Does not need to be an actual place.
3. Demand Demand: the willingness and ability to purchase a quantity of a good or service at a certain price over a given time period. Law of Demand: states that as the price of a good or service rises, the quantity demanded decreases. Demand curve: a graphical representation of the law of demand. Depicts the inverse relationship between price and quantity demanded.
5. Supply Supply: the willingness and ability of a producer to produce a quantity of a good or service at a certain price over a given period of time. Law of supply: states that as the price of a good rises, the quantity supplied increases. Supply curve: Is a graphical representation of the law of supply. Illustrates the direct relationship between price and quantity supplied.
9. Maximum Price Maximum price (price ceiling): price set by the government, above which the market price is not allowed to rise. Usually set to protect consumers from high prices, perhaps for essential goods. Examples can be house rentals.
11. Minimum Price Minimum Price (price floor): Price set by the government, below which the market price is not allowed to fall. Usually set to protect producers producing essential products from facing prices that are too low. Examples are wages.
