SN PLUS 3

SN PLUS 3

Labor Supply

Study Guide

Terms

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Terms

Aggregate Demand

The combined demand of all buyers in a market.
Aggregate Supply

The combined supply of all sellers in a market.
Budget Constraint

Outermost boundary of possible purchase combinations that a person can make given how much money they have and the price of the goods in consideration.
Buyer

Someone who purchases goods and services from a seller for money.
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

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

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

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 services 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.
Horizontal addition

The process of adding together all quantities demanded at each price level to find aggregate supply or aggregate demand.
Income Effect

Income effect describes the effects of changes in prices on consumption. According to the income effect, an increase in price causes a buyer to feel poorer, lowering the quantity demanded, and vice versa. Although the buyer's actual income hasn't changed, the change in price makes the buyer feel as if it has.
Indifference Curve

Graphical representation of different combinations of goods and services that give a consumer equal utility or happiness.
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.
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.
Normal Good

A normal good is a good for which an increase in income causes an increase in demand, and vice versa.
Optimization

To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
Seller

Someone who sells goods and services to a buyer for money.
Substitution Effect

Describes the effects of changes in relative prices on consumption. According to the substitution effect, an increase in price of one good causes a buyer to buy more of the other, substituting good, since the first good has become relatively expensive with respect to the second good, and vice versa. The buyer substitutes consumption of the second good for consumption of the first. For more detailed information about the substitution effect, click here.
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.
Utility

An approximate measure for levels of "happiness."
Wage

Price per unit of time when the good being sold is some form of labor or work (instead of a physical product).

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