The Role of Consumer in the Economy

These flashcards cover key vocabulary terms related to consumer roles, efficiency, savings, demand, supply, and market equilibrium in economics.

Consumer Sovereignty

The idea that consumer spending determines the pattern of production and resource allocation in an economy.

Technical Efficiency

Producing goods at the least cost possible.

Allocative Efficiency

Allocating resources to satisfy consumer preferences in the market.

Dynamic Efficiency

The ability of firms to respond to changing consumer preferences and technological improvements over time.

Dissaving

When consumption exceeds disposable income.

Average Propensity to Consume (APC)

The proportion of income that is spent on consumption.

Average Propensity to Save (APS)

The proportion of income that is saved.

Marginal Propensity to Consume (MPC)

The proportion of an increase in income that will be consumed.

Marginal Propensity to Save (MPS)

The proportion of an increase in income that will be saved.

Autonomous Consumption

Consumption spending that occurs even when income is zero.

Economies of Scale

Reductions in average costs as output increases.

Internal Economies of Scale

Cost reductions occurring within a firm as a result of increased production.

External Economies of Scale

Cost-saving benefits that accrue to a firm due to external factors.

Law of Demand

The principle that states as price decreases, demand increases.

Market Equilibrium

A condition where the quantity demanded equals the quantity supplied.

Price Mechanism

The process by which supply and demand interact to determine market prices.