Untitled Flashcards Set

Supply Curve

A graph that shows the relationship between the price of a product and the quantity supplied, typically sloping upward.

Demand Curve

A graph that shows the relationship between the price of a product and the quantity demanded, typically sloping downward.

Equilibrium

The price and quantity at which the market clears; where marginal cost equals marginal benefit.

Shortage

A situation where the price is low and below the equilibrium point, leading to increased demand.

Surplus

A situation where the price is high and above the equilibrium point, leading to excess supply.

Price Floor

A minimum price set by the government that may result in a surplus if above equilibrium.

Price Ceiling

A maximum price set by the government that may result in a shortage if below equilibrium.

Inelastic Demand

Demand that is less responsive to price changes; characterized by few substitutes and E < 1.

Elastic Demand

Demand that is more responsive to price changes; characterized by many substitutes and E > 1.

Total Utility

The total satisfaction received from consuming a certain quantity of goods or services.

Marginal Utility

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

Utility Maximization Process

A method to maximize consumer satisfaction by calculating marginal utility per price and selecting the option with the highest utility.