Topic 2 Econ Defintions

Demand

The quantity of a good or service that consumers are willing and able to buy at a given price.

Supply

The quantity of a good or service that producers are willing and able to sell at a given price.

Market Equilibrium

The point where the quantity demanded equals the quantity supplied, resulting in no excess supply or demand.

Price elasticity of demand

The responsiveness of quantity demanded to a change in price.

Price elasticity of supply

The responsiveness of quantity supplied to a change in price.

Consumer surplus

The difference between the maximum price consumers are willing to pay for a good or service and the actual price they pay.

Producer surplus

The difference between the minimum price producers are willing to sell a good or service for and the actual price they receive.

Law of Demand

The principle that as the price of a product decreases, the quantity demanded of it will increase, *ceteris paribus*.

Law of diminishing marginal returns

The principle that adding more of one factor of production (input), while holding at least one other factor of production constant, will at some point yield lower marginal returns (output/product).

Law of diminishing marginal utility

The principle that as additional units of a good or services are consumed, the marginal utility will decline.

Law of supply

As the price of a product increases, the quantity supplied will usually increase, *ceteris paribus*.

Marginal utility

The additional satisfaction or usefulness that a consumer derives from consuming one more unit of a good or service.

Marginal Cost

The additional cost of producing one more unit of a good or service.

Revenue

The income that a firm receives from selling its goods or services.

Factors of production

All resources used to produce goods and services. In economics they are grouped into four categories: land, labour, capital and entrepreneurship.

Non-price determinants of supply

costs of production, technological change, future expectations, number of firms in the market, price of related goods, government intervention

Market Supply

the sum of all the individual supplies of a product at any given price

Non-price determinants of demand

changes in income, change in price of related goods, tastes and preferences, future expectations, number of consumers, seasonal change

Productive efficiency

producing goods by using the fewest possible resources; lowest cost

Allocative efficiency

producing the optimal combination of goods from society’s point of view

Social/Community surplus

the sum of consumer surplus and producer surplus; total benefit gained by society when the market is at equilibrium