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Supply and Demand an

Consumer Surplus The difference between the market price of a product and the higher price which a consumer is willing to pay rather than do without
Law of diminishing marginal utility As a consumer consumes additional units of a good, a point will eventually arise where the marginal utility gained from extra consumption will eventually decline
Market supply The total quantity of a good that all firms are willing to supply at different prices
Market equilibrium Where quantity demanded meets quantity supplied and there is no tendency for price to change
Normal goods Have the ordinary reaction to a change in price i.e. Obeys the law of demand. They have a positive income effect
Equip marginal principal of consumer behaviour A consumer will experience maximum satisfaction when the ratio of marginal utility to price is the same for all the goods which he or she consumes
Unitary elastic Any percentage change in price results in an equal percentage change in quantity demanded
Perfectly inelastic demand Quantity demanded does not depend on price but on other factors e.g. Life saving medication
Inelastic demand Coefficient less than one. The percentage change in demand is less than the percentage change in price of that good
Effective demand Demand supported by the necessary purchasing power i.e. Money
Derived demand Where a factor of production is demanded not for its own use but for its contribution to the production process e.g. Timber
Inferior goods When income goes up, demand goes down and vice versa. Has a negative income effect
Income elasticity of demand Measure the percentage change in demand caused by the percentage change in a consumers income
Price elasticity of demand Measures the percentage change in the quantity demanded for a good caused by the percentage change in the price of that good
Substitution effect When the price of a good rises customers may shift to cheaper substitutes to maximise utility
Income effect When the price of a good falls it means that the consumers real income will rise
Created by: jaffacake



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