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Unit 3 D, S, and E
Demand, Supply and Equilibrium
Term | Definition |
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Law of Demand | other factors being constant, the price and the quantity demanded of any good and service are inversely related to each other. |
diminishing marginal utility | as a person increases consumption of one product, while keeping consumption of other products constant, marginal Utility from the one product will decrease. |
consumer surplus | the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay. |
complement good | If the price of good A rises, (Qd falls) and demand for good B falls, the two goods are considered _________________. |
substitute good | If the price of good A rises, (Qd falls) and demand for good B rises, the two goods are considered _________________. |
demand elasticity | how sensitive the demand for a good is to changes in price |
law of supply | an increase in price results in an increase in quantity supplied. There is a positive relationship between price and quantity. |
diminishing marginal returns | adding more of one factor of production, while holding all others constant will at some point yield lower per-unit returns. |
consumer maximization | Consume products in a way to maximize the marginal utility per $ spent. Do this by consuming combinations of products to the point that the marginal utility per $ spent of 1 product equalizes the marginal utility per $ spent of a 2nd product |
market equilibrium | where quantity demanded by consumers and quantity supplied by producers are equal. |