A group of producers and consumers who come together to trade a good or service in exchange for payment.

A market with so many buyers and sellers of an identical good that no single participant's choices can move the market price on their own.

The framework economists use to explain how price and quantity are set in a competitive market; it rests on five building blocks.

The model combines the demand curve, the supply curve, the factors that shift each curve, the market equilibrium (price and quantity), and how that equilibrium changes when a curve shifts.

A table listing how much of a good consumers are willing and able to buy at each possible price.

The specific amount of a good buyers are willing and able to purchase at one particular price.

The graph of a demand schedule, plotting quantity demanded against price; it normally slopes downward.

All else equal, a higher price leads people to buy less of a good, while a lower price leads them to buy more.

A change in quantity demanded caused only by a change in the good's own price, shown as sliding along a fixed demand curve.

A move of the entire demand curve to a new position, altering the quantity demanded at every price; triggered by something other than the good's own price.

A rightward shift of the demand curve: buyers want a larger quantity at any given price.

A leftward shift of the demand curve: buyers want a smaller quantity at any given price.

Five main forces move the demand curve: prices of related goods, income, tastes, expectations, and the number of consumers.

Two goods where a rise in the price of one raises demand for the other, such as coffee and tea.

Two goods where a rise in the price of one lowers demand for the other, such as cappuccinos and croissants.

A good whose demand rises when consumer income rises, which is the usual case.

A good whose demand falls when income rises, because people trade up to preferred alternatives, such as choosing taxis over bus rides.

When preferences shift toward a good, its demand curve moves right; when they shift away, it moves left.

Expecting a good's price or one's income to rise soon tends to raise demand today, while expecting a future price drop lowers demand today.

More buyers in a market raise market demand; fewer buyers lower it.

The demand curve for a single consumer, showing how much that one person buys at each price.

The horizontal sum of every individual demand curve, showing total quantity demanded by all consumers at each price.

London's 2003 congestion charge for driving into the city center cut central traffic by roughly 10%, a real-world confirmation of the law of demand.

The specific amount of a good producers are willing to sell at one particular price.

A table showing how much of a good producers will offer for sale at each price.

The graph of a supply schedule, plotting quantity supplied against price; it normally slopes upward.

All else equal, price and quantity supplied move together, so a higher price draws out a larger quantity.

A change in quantity supplied caused only by a change in the good's own price.

A move of the entire supply curve, changing the quantity supplied at every price; triggered by something other than the good's own price.

An increase in supply shifts the curve right (more offered at any price); a decrease shifts it left (less offered at any price).

Five main forces move the supply curve: input prices, prices of related goods, technology, expectations, and the number of producers.

Costlier inputs reduce supply (curve shifts left), while cheaper inputs increase it.

When goods can be made from the same resources, a change in one good's price shifts the supply of the other, up or down depending on whether they are substitutes or complements in production.

Better production technology lets firms make more at any given price, increasing supply.

Expecting a higher future price can make producers hold back today (supply falls now), while expecting a lower future price raises supply today.

More firms in a market raise market supply; fewer firms lower it.

The horizontal sum of all individual producers' supply curves.

A situation in which no participant can make themselves better off by choosing to do something different.

The point where the supply and demand curves cross, so quantity demanded equals quantity supplied.

The price that balances quantity demanded and supplied, ensuring every willing buyer finds a willing seller and vice versa.

The amount actually bought and sold once the market settles at the equilibrium price.

Excess supply: when price sits above equilibrium, quantity supplied exceeds quantity demanded, which pushes the price back down.

Excess demand: when price sits below equilibrium, quantity demanded exceeds quantity supplied, which pushes the price back up.

As pet-care prices rose, many veterinarians shifted away from farm work, an example of services that are substitutes in production, shifting the supply of farm vets to the left.

A rightward demand shift raises both the equilibrium price and the equilibrium quantity.

A leftward demand shift lowers both the equilibrium price and the equilibrium quantity.

A rightward supply shift lowers the equilibrium price and raises the equilibrium quantity.

A leftward supply shift raises the equilibrium price and lowers the equilibrium quantity.

When demand and supply move in opposite directions, the change in price is predictable but the change in quantity is uncertain, depending on which shift is larger.

When demand and supply move in the same direction, the change in quantity is predictable but the change in price is uncertain.

In 2007, U.S. ethanol mandates raised corn demand and prices; because corn is an input for tortillas, tortilla supply fell and prices spiked, triggering protests in Mexico City, a classic supply-driven price rise.

Government-imposed legal limits on how high or low a market price is allowed to go.

A legal maximum price sellers may charge; it only affects the market when set below the equilibrium price.

A legal minimum price buyers must pay; it only affects the market when set above the equilibrium price.

A ceiling above equilibrium or a floor below equilibrium has no effect; a control only bites when it forces price away from equilibrium.

A binding ceiling creates a persistent shortage by raising quantity demanded and lowering quantity supplied.

Under a ceiling, the scarce good often goes to people who value it less, while some who want it badly cannot get it.

Shortages caused by a price ceiling push people to waste time and effort, such as waiting in long lines, to obtain the good.

Because a ceiling caps seller earnings, firms cut quality even though buyers would gladly pay more for better.

An illegal market where goods are traded above the legal ceiling price or where the trade itself is prohibited.

A price floor on labor, a legal minimum hourly wage; when set above equilibrium it can leave some willing workers unable to find jobs.

A binding floor creates a persistent surplus by lowering quantity demanded and raising quantity supplied; like a ceiling, it shrinks the quantity actually traded.

Under a floor, sales do not always go to the sellers who would be willing to sell most cheaply.

A floor pushes sellers to add costly quality even when buyers would rather pay less for less, as with lavish meals on regulated-era airlines.

New York's rent controls, a leftover from World War II, hold some rents far below market levels but cause shortages, poorly maintained apartments, and illegal subletting.

Great Depression-era farm price supports left the government holding surplus food, which it handed to schools as bonus foods, yielding cheap but often high-fat lunches.

A legal upper limit on the quantity of a good that may be bought or sold.

Official permission granting its holder the right to supply a controlled good, such as a taxi medallion.

The price at which consumers are willing to buy exactly a given quantity of a good.

The price at which producers are willing to supply exactly a given quantity of a good.

A binding quota lifts the demand price paid by buyers above the supply price received by sellers; the gap between them is the wedge.

The earnings the license-holder captures, equal to the wedge between demand and supply price and to the market value of the license.

The value lost from mutually beneficial trades that never occur because of a market intervention such as a quota.

Quotas cause inefficiency from missed trades (deadweight loss) and create incentives to evade or break the law.

New York caps taxis by issuing a fixed number of medallions; the resulting scarcity makes each medallion extremely valuable and drives a wedge between the fare riders pay and what drivers keep.

A federal clam-fishing quota, unlike the taxi quota, is justified on environmental grounds to prevent overfishing, yet it still makes the required licenses worth more than the boats themselves.