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Supply and Demand an
| Term | Definition |
|---|---|
| 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