How Markets Work Flashcards
Market
Where consumers and producers come into contact with each other to exchange goods and services.
Utility
The amount of satisfaction obtained from consuming a good or service
Rational decision making
Where consumers allocate their expenditure on goods and services to maximize utility, and producers allocate their resources to maximize profits.
Demand
The quantity of a good or service purchased at a given price over a given time period.
Demand curve
Shows the quantity of a good or service that would be bought over a range of different price levels in a given period of time.
Marginal utility
The ability or satisfaction obtained from consuming one extra unit of a good or service.
Diminishing marginal utility
As successive units of a good are consumed, the utility gained from each extra unit will fall.
Price elasticity of demand
The responsiveness of demand for a good or service to a change in its price.
Normal good
A good with a positive income elasticity of demand. As income rises so too does the demand for the good.
Supply curve
Shows the quantity of a good or service that firms are willing to sell at a given price and over a given period of time.
Total revenue
The price per unit of a good multiplied by the quantity sold.
Cross elasticity of demand
The responsiveness of demand for good B to change the price of good A.
Price elasticity of supply
The responsiveness of the supply of a good or service to a change in its price.
Excess supply
Where the quantity supplied exceeds the quantity demanded for a good at the current market price.
Price mechanism
The use of market forces to allocate resources in order to solve the economic problem of what, how and for whom to produce.
