The combined demand of all buyers in a market.
The outermost boundary of possible purchase combinations that a person can
make, given how much money they have and the price of the goods in
Someone who purchases goods and services from a seller for
In a market economy, competition occurs between large numbers of
buyers and sellers who vie for the opportunity to buy or sell goods
and services. The competition among buyers means that prices will never
fall very low, and the competition among sellers means that prices will never
rise very high. This is only true if there are so many buyers and sellers that
no one individual has a significant impact on the market's equilibrium.
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 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
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. Example:
A Sample Demand Curve
Concept that the marginal utility derived from acquiring successive
identical goods decreases with increasing quantities of goods.
Economics is the study of the production and distribution of scarce
resources, and goods and services.
The price of a good or service at which quantity supplied is
quantity demanded. Also called the market-clearing price.
Amount of goods or services sold at the equilibrium price.
supply is equal to demand at this point, there is no surplus or
Expected Value (EV)
How much a buyer thinks that a good or investment will be worth after a time
lapse, based on the probabilities of different possible outcomes. Usually
refers to stocks and other uncertain investments.
Theoretical case in which an increase in the price of a good causes
an increase in quantity demanded.
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 are bought and sold. In a market economy,
competition among buyers and sellers sets the market
equilibrium, determining the price and the quantity sold.
The process of adding together all quantities demanded at each price
find aggregate demand
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.
Income effect describes the effects of changes in prices on
According to the income effect, an increase in price causes a buyer
poorer, lowering the quantity demanded, and vice versa. Although the
actual income hasn't changed, the change in price makes the buyer feel
as if it
Graphical representation of different combinations of goods and
that give a consumer equal utility or happiness.
A good for which quantity demanded decreases with increases in income.
Additional utility derived from each additional unit of goods
A large group of buyers and sellers who are buying and selling
good or service.
An economy in which the prices and distribution of goods and
determined by the interaction of large numbers of buyers and
have no significant individual impact on prices or quantities.
The price of a good or service at which quantity supplied is
quantity demanded. Also called the equilibrium price.
Subfield of economics which studies how households and
firms behave and interact in the market.
A normal good is a good for which an increase in income causes an
in demand, and vice versa.
To maximize utility by making the most effective use of available
resources, whether they be money, goods, or other factors.
A supply of capital that can be used in an economy. Because
resources are scarce, however, there is not enough to go around.
Refers to the amount of variation in possible payoffs. A very risky investment
will have wide variation in possible payoffs, but might have a higher expected
value; a less risky investment will have a more predictable payoff, but a
lower expected value.
Refers to a buyer who is unwilling to invest in an investment with wide
variation in possible payoffs. Someone who is risk-averse might even refuse to
invest in something with a positive expected value if the variation in
possible outcomes is too great.
Refers to a buyer who is willing to invest in an investment with wide
variation in possible payoffs, in the hopes of getting a large return. In
extreme cases, a risk lover might even invest in something with a negative
Refers to a buyer who does not care about variation in possible payoffs. A
risk-neutral buyer will invest in any investment with a positive expected
return, regardless of how risky it is.
Goods, services, or resources are scarce if there is not
enough for everyone to have as much as they would like.
Someone who sells goods and services to a buyer for money.
Refers to a good which is to some extent interchangeable with
meaning that when the price of one good increases, demand for the other
Describes the effects of changes in relative prices on consumption.
to the substitution effect, an increase in price of one good causes
buyer to buy more of the other good, since the first good has
relatively expensive, and vice versa. The buyer substitutes
consumption of the
second good for consumption of the first.
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.
An approximate measure for levels of "happiness."
Price per unit of time when the good being sold is some form of
labor or work (as opposed to a physical product).