2.1-2.6 Summative Flashcards
demand
consumer’s willingness and ability to pay a sum of money for a good or service at a given time
utility
the theory based on looking at demand in terms of satisfaction an individual receives from consuming a good or service
marginal utility
calculates the consumer’s satisfaction from last unit of the good or service
the law of diminishing utility
states that for each extra unit of a good is consumed by a customer, the marginal utility they receive from consuming a good falls
quantity demanded
represents how many goods or services a consumer willing to pay at a given specific price
substitute goods
the goods that consumers see as essentially the same or similar
complement goods
two or more goods that can be purchase together with another good
normal good
goods that have a positive relationship between income and demand
necessity goods
goods that consumers need to sustain their lives
luxury goods
goods that the demand increases more than proportionally as income rises
inferior goods
goods that have a negative relationship between income and demand
supply
a willingness and ability of suppliers to produce goods at a given time, ceteris paribus
market equilibrium
occurs where demand equal supply and the market-clearing price and output are established
surplus
when supply exceeds demand
shortage
when demand exceeds supply
the rationing function of price
when there is a shortage of a product, price will rise and discourage some customers from buying the product
allocative efficiency
when the quantity of resources allocated to a market maximizes the community surplus
producer surplus
the difference between the price the producer is willing to sell their goods and the market price of the good
consumer surplus
the difference between the price the consumers are willing to pay for a good and the market price
social surplus
the total benefits gained by sellers and buyers in a market
Price Elasticity of Demand
the responsiveness of quantity demanded for a good to change in its price
elasticity
measures how consumers and producers respond to changes in variables that affect demand and supply
price elastic demand
when the PED value is greater than 1 and a change in price leads to a proportionally greater change in quantity demanded
price inelastic demand
when the PED value is less than 1 and when a change in the price of good leads to less than a proportionate change in quantity demanded
perfect inelastic
when a change in the price of a product will have no effect on the quantity demanded
perfectly elastic
when the response to price is complete and infinite
Price Elasticity of Supply
measures the responsiveness of quantity supplied to changes in price
Income Elasticity of Demand
measures the relationship between changes in household incomes and changes in the quantity demand for a good or service
revenue
a value of income a business receives from selling a good
