ceteris paribus
‘other things being equal’
when we compare two economic outcomes, we are trying to hold all variables constant so we are comparing the same things.
complements
goods that are often used together so that consumption of one good tends to enhance consumption of the other.
consumer surplus
the extra benefit consumers receive from buying a good or service above what they actually paid for the item.
measured by what the individuals would have been willing to pay minus the amount that they actually paid.
deadweight loss
the reduction in social surplus that occurs when a market produces an inefficient quantity.
this can arise from too much or too little activity.
if there is a deadweight loss, then society is not maximising welfare.
demand
the relationship between price and the quantity demanded of a certain good or service.
refers tot the entire schedule of prices and quantity demanded. Quantity demanded refers to how much a consumer would be willing and able to purchase at a certain price.
demand curve
a graphical representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the x-axis and price on the y-axis.
typically downward sloping.
demand schedule
the table that shows a range of prices for a certain good or service and the quantity demanded at each price.
equilibrium
the situation where the market is ‘at rest’ so that, unless there is some external shock, the market will remain unchanged.
equilibrium price
where quantity demanded is equal to the quantity supplied. it implies the market will not need to adjust since there is no internal pressure to change.
equilibrium quantity
the market quantity at which quantity demanded is equal to the quantity supplied and are equal for a certain price level.
excess demand
occurs when, at the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage.
excess supply
at the existing price, quantity supplied exceeds the quantity demanded; also called a surplus quantity.
factors of production
are the resources (such a labour and machinery) that are used to produce goods and services. Also called inputs. Generally the more of each input, the more of each output is generated.
inferior good
a good or service in which the quantity demanded falls as income rises, and conversely, in which quantity demanded rises as income falls.
inputs
resources that are used to produce goods and services; also called factors of production.
law of demand
higher price leads to lower quantity demanded. Lower price leads to higher quantity demanded.
law of supply
higher price leads to greater quantity supplied. Lower price leads to a lower quantity supplied.
normal good
a good or service in which the quantity demanded rises as income rises.
price
the dollar amount that a buyer pays for one unit of the specific good or service.
price ceiling
a legal maximum price that sellers can charge for a good or service.
price control
government laws that regulate prices instead of letting market forces solely determine prices.
price floor
legal minimum price.
producer surplus
the extra benefit producers receive from selling a good or service in a market.
quantity demanded
the total number of units of a good or service consumers are willing to purchase at a given price.
