Economics Lecture Notes Review

Vocabulary flashcards for economics exam review.

Consumer Role

Buys goods and services, provides information to producers, and pays indirect taxes.

Consumer Sentiment

A mathematical measure of the health of the economy based on consumer spending habits.

Law of Diminishing Marginal Utility

The idea that as more units of a good are consumed, the marginal utility decreases.

Equi-Marginal Principle

A consumer spends their income so that the ratio of marginal utility to price is equal across all goods.

Demand

The number of units of goods and services a consumer wants to buy at various prices.

Law of Demand

An increase in price leads to a decrease in quantity demanded or vice versa.

Derived Demand

Demand not for its own sake but as an essential part of another product.

Composite Demand

When a commodity is required for a number of different uses.

Joint Demand

When the demand for one product is joined with the demand for another product.

Complementary Goods

Goods that are used jointly.

Substitute Goods

Goods that satisfy the same needs and can be considered alternatives.

Normal Goods

A good that obeys the law of demand and has a positive income effect.

Inferior Goods

A good with a negative income effect.

Giffen Goods

Goods with a positive price effect; more is bought as the price rises.

Supply

Quantity of a good firms are willing to make available at various prices.

Market/Aggregate Supply

Quantity of a good supplied by all firms in the market at different prices.

Law of Supply

As price increases, quantity supplied increases.

Fixed Supply

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

Price Mechanism

Means by which decisions are taken by consumers and firms to allocate scarce resources.

Signaling Function

Changes in price provide information about the changing nature of markets.

Transmission of Preferences Function

Consumer demand transmits information about consumer preferences to suppliers.

Rationing Function

When a shortage of a product occurs, prices rise, discouraging some consumers.

Consumer Surplus

The difference between what consumers actually pay and what they are willing to pay.

Producer Surplus

The difference between the price a seller receives and the price they would have accepted.

Rent Pressure Zones (RPZ)

Areas identified where rent increases are restricted by the government.