microeconomics definitions

microeconomics

microeconomics

the study of the behaviour of individual consumers, firms, and markets and the determination of market prices and quantities of goods, services and factors of production

market

any arrangement where buyers and sellers interact to carry out an economic transaction

law of demand

as the price of a good falls, the quantity demanded will increase over a certain period of time, ceteris paribus

ceteris paribus

other things being equal

income effect

if the price of a good increases, then the real income of consumers decreases and, typically, they will tend to buy less of the good (real income/purchasing power decreases)

substitution effect

when the price of a product falls relative to other product prices, consumers purchase more of the product as it is now relatively less expensive

demand

the relationship between possible prices of a good or service and the quantities that individuals are willing and able to buy over some time period, ceteris paribus

substitutes

goods that can be used in place of each other, as they satisfy a similar need

marginal utility

the extra or additional utility derived from consuming one more unit of a good or service
- diminishes: each successive unit provides the consumer with less and less benefit (utility)