Terms
Aggregate Demand
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The combined demand of all buyers in a market.
Aggregate Supply
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The combined supply of all sellers in a market.
Buyer
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Someone who purchases goods and services from a seller for
money.
Complementary Good
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A good is called a complementary good if the demand for the good
increases with demand for another good. One extreme example: right shoes are
complementary goods for left shoes.
Demand
-
Demand refers to the amount of goods and services that buyers
are willing to purchase. Typically, demand decreases with increases in
price, this trend can be graphically represented with a demand curve.
Demand can be affected by changes in income, changes in price, and changes in
relative price.
Demand Curve
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A demand curve is the graphical representation of the relationship
between quantities of goods and services that buyers are willing to
purchase and the price of those goods and services.
Equilibrium Price
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The price of a good or service at which quantity supplied is
equal to quantity demanded. Also called the market-clearing price.
Equilibrium Quantity
-
Amount of goods or services sold at the equilibrium price.
Because supply is equal to demand at this point, there is no
surplus or shortage.
Firm
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Unit of sellers in microeconomics. Because it is seen as one
selling unit in microeconomics, a firm will make coordinated efforts to
maximize its profit through sales of its goods and services. The
combined actions and preferences of all firms in a market will
determine the appearance and behavior of the supply curve.
Goods and Services
-
Products or work that can be bought and sold. In a market economy,
competition among buyers and sellers sets the market
equilibrium, determining the price and the quantity sold.
Horizontal addition
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The process of adding together all quantities demanded at each price
level to find aggregate supply or aggregate demand.
Household
-
Unit of buyers in microeconomics. Because it is seen as one buying unit in
microeconomics, a household will make coordinated efforts to maximize its
utility through its choices of goods and services. The combined actions
and preferences of all households in a market will determine the
appearance and behavior of the demand curve.
Labor market
-
A large group of firms and workers in the same industry: the firms want to
hire workers, the workers want jobs. The interaction between the two groups
determines the market wage and quantity of labor used.
Law of Diminishing Returns
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Concept that the marginal revenue derived from additional units of labor
decreases as quantities of labor increases.
Marginal Product
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The additional amount of goods generated by using one more unit of work.
Marginal Revenue Product
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The additional income generated by using one more unit of input.
Marginal Revenue Product of Labor
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The additional income generated by using one more unit of work.
Market
-
A large group of buyers and sellers who are buying and selling the
same good or service.
Market-clearing Price
-
The price of a good or service at which quantity supplied is
equal to quantity demanded. Also called the equilibrium price.
Optimization
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To maximize utility by making the most effective use of available
resources, whether they be money, goods, or other factors.
Price Ceiling
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Maximum price set by the government on a specific good. Usually is set
below market price, causing a shortage.
Price Floor
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Minimum price set by the government on a specific good. Usually is set
above market price, causing a surplus.
Revenue
-
The income a firm makes from selling its products. Revenue as equal
to price per unit times quantity sold, (P)x(Q).
Seller
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Someone who sells goods and services to a buyer for money.
Supply
-
Supply refers to the amount of goods and services that sellers
are willing to sell. Typically, supply increases with increases in
price, this trend can be graphically represented with a supply curve.
Supply Curve
-
A supply curve is the graphical representation of the relationship
between quantities of goods and services that sellers are willing to
sell and the price of those goods and services.
Surplus
-
Situation in which the quantity supplied exceeds the quantity demanded
for goods and services or labor; in this situation, the price (or wage)
is above the equilibrium price (or wage).
Wage
-
Price per unit of time when the good being sold is some form of
labor or work (instead of a physical product).
