Econ vocab
Law of Demand
Definition: As the price of a good increases, the quantity demanded decreases; as the price decreases, the quantity demanded increases (inverse relationship).
Example: When the price of pizza goes up, people buy fewer pizzas.
Demand
Definition: The willingness and ability of consumers to purchase a good or service at various prices.
Example: The demand for smartphones increases during holiday sales.
Price Elasticity of Demand (PED)
Definition: A measure of how sensitive the quantity demanded is to a change in price.
Example: If a small drop in the price of soda causes a big increase in sales, soda has elastic demand.
Diminishing Marginal Utility
Definition: The satisfaction (utility) from consuming additional units of a good decreases as more of it is consumed.
Example: The first slice of cake tastes amazing, but by the fourth slice, it’s less enjoyable.
Change in Demand
Definition: A shift of the entire demand curve, caused by factors other than price (like income, tastes, or substitutes).
Example: If a new health study shows coffee improves memory, more people buy coffee at all price levels.
Diminishing Personal Value
Definition: As people consume more of a good, they place less value on additional units because their needs/wants are already satisfied.
Example: A second pair of shoes is valuable, but the tenth pair feels less important.
Substitute Good
Definition: A good that can replace another because it satisfies the same need.
Example: Butter and margarine are substitutes—if butter’s price rises, people may buy margarine instead.
Complementary Good
Definition: A good that is often used together with another good.
Example: Hot dogs and hot dog buns are complements—if hot dog prices fall, bun sales may increase.
Buying Power
Definition: The amount of goods and services a consumer can purchase with their income.
Example: If prices fall but your income stays the same, your buying power increases.