1.2 Vocabulary Flashcards
Utility
The amount of satisfaction obtained from consuming a good/service
Rational decision making
Consumers allocate expenditure to maximise utility
Producers allocate resources to maximise profit
Demand
desire and willingness to purchase a product at a given price
Demand curve
shows the quantity of a good/service that would be bought over a range of different price levels in a given period of time
Total utility
satisfaction gained from overall consumption of a good
Marginal utility
change in satisfaction gained from the consumption of the next unit of a good
Diminishing marginal utility
As more units of a good are consumed, the utility gained from each extra unit will fall
Price elasticity of demand
The responsiveness of demand to a change in price
Total revenue
The price per unit of a good multiplied by the quantity sold
Marginal revenue
Revenue gained by a firm by selling one extra unit of output
YED
the responsiveness of demand in response to a change in real income
Normal good
A good where demand increases with an increase in income
Positive YED
Inferior good
A good where demand decreases in response to an increase in income
Negative YED
XED (cross price elasticity of demand)
the change in demand of one good in relation to a change in price of another good
supply
the quantity a firm is willing to sell at a given price and over a given time period
PES
price elasticity of supply
the responsiveness of supply to a change in price
equilibrium price
where demand is equal to supply of a good
excess supply
where the quantity supplied exceeds the quantity demanded for a good at the current market price
excess demand
where the quantity demanded exceeds the quantity supplied for a good at the current market price
price mechanism
use of market forces to allocate resources in order to solve the economic problem
the 3 functions of the price mechanism
signalling function
rationing function
incentive function
consumer surplus
the extra amount of money consumer is willing and able to pay compared to the actual price paid
producer surplus
the extra amount of money paid to suppliers above what they are willing to accept to supply a good
Indirect tax
tax on expenditure
