Market Economy

Fixed Supply

Supply of a product that cannot be changed in the short term.

Income Effect

The change in the consumption of goods based on income; consumers spend more with increased income and less with decreased income.

Substitution Effect

Occurs when a consumer replaces cheaper items with ones that are more expensive due to a change in finances.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded, typically downward sloping.

Law of Demand

States that when the price increases, the quantity demanded decreases, and when the price decreases, the quantity demanded increases.

Giffen Goods

Inferior goods for which demand increases as the price increases.

Veblen Goods

Goods that become more desirable or valuable as their price increases, such as luxury items.

Law of Supply

States that when the price increases, the quantity supplied increases, and when the price decreases, the quantity supplied decreases.

Equimarginal Principal

Consumers choose a combination of goods to maximize their total utility based on the marginal utility per price ratio.

Law of Diminishing Marginal Utility

The principle stating that the satisfaction derived from consuming additional units of a good decreases as consumption increases.

Marginal Utility

The additional satisfaction or utility gained from consuming one more unit of a good.

Movement along the Demand Curve

Occurs when there is a change in the selling price of the good.

Positive Shift on the Demand Curve

A shift of the demand curve to the right, indicating an increase in demand.

Negative Shift on the Demand Curve

A shift of the demand curve to the left, indicating a decrease in demand.

Movement along the Supply Curve

Occurs when there is a change in the selling price of the good.

Positive Shift on the Supply Curve

A shift of the supply curve to the right, indicating an increase in supply.

Negative Shift on the Supply Curve

A shift of the supply curve to the left, indicating a decrease in supply.

Marginal Utility of Expenditure

The consideration of both the marginal utility of goods and their prices, summarized as MU/Price.