ALL DEFINITIONS PLS MEMORISE Flashcards
Law of demand
Q demanded of a good or service decreases as price increases ceteris paribus.
Law of Diminishing Marginal Utility
As more of a product is consumed, the extra utility gained by the consumer from each additional unit of a good decreases.
Law of Supply
Q supplied of a good or service increases as price increases, ceteris paribus.
Law of Diminishing Marginal Returns
As more factors of production are used, each additional unit brings declining returns
Price mechanism
The interactions between consumers and producers that allocate resources and determines prices of goods and services.
Allocative efficiency
Producing the quantity and combination of goods and services mostly preferred by consumers.
Market failure
The inability of the free market to achieve allocative efficiency.
Price elasticity of demand
The degree of responsiveness of the Q demanded to a change in the price, ceteris paribus.
Income elasticity of demand
The degree of responsiveness of the quantity demanded of a good to a change in income.
Price elasticity of supply
The degree of responsiveness of the Q supplied of a good to a change in price, ceteris paribus.
Positive externalities
Actions of consumers / producers give rise to positive effects on the 3rd part who are not involved in the transaction.
Negative externalities
Actions of consumers / producers give rise to negative effects on the 3rd party who are not involved in the transaction.
Economies of scale
decreases of average
cost of production in the LR as a firm increases its outputs.
Diseconomies of scale
increases of average
cost of production in the LR as a firm increases its outputs.
Perfect competition
Large number of small firms
Identical products
Low barriers of entry
Price takers
