Demand & Utility
This area of economics studies the decision-making of households, firms, and governments.
What is microeconomics?
This factor, like input costs, technology, or the number of firms, can shift the supply curve.
What is a non-price determinant of supply?
This occurs where quantity demanded equals quantity supplied.
What is market equilibrium?
This measures the benefit consumers get when they pay less than what they were willing to pay.
What is consumer surplus?
When the price of tea (a substitute) falls, this happens to the demand for coffee.
What is a decrease (leftward shift) in demand for coffee?
This law states that each additional unit consumed gives less satisfaction than the previous one.
What is the law of diminishing marginal utility?
This government action increases producers’ costs and shifts supply to the left.
What is a tax?
This happens when demand increases, both equilibrium price and quantity rise.
What are the effects of an increase in demand?
This measures the benefit producers receive when the market price is above what they were willing to accept.
What is producer surplus?
When a consumer’s income rises, this type of good sees increased demand.
What is a normal good?
This effect explains that when a good becomes cheaper, consumers can buy more because their real income increases.
What is the income effect?
This law explains that when additional variable inputs are added to fixed inputs, output eventually increases at a decreasing rate.
What is the law of diminishing marginal returns?
This type of market imbalance occurs when the price is below equilibrium and demand exceeds supply.
What is a shortage?
This point on a market diagram shows that marginal benefit equals marginal cost, meaning resources are used efficiently.
What is allocative efficiency?
This effect causes consumers to buy more of a relatively cheaper good and less of a more expensive one.
What is the substitution effect?
This term means the extra satisfaction gained from consuming one more unit of a good.
What is marginal utility?
This curve represents both the quantity firms are willing to sell and their marginal cost of production.
What is the supply curve?
This type of market imbalance occurs when the price is above equilibrium and supply exceeds demand.
What is a surplus?
This type of welfare loss can occur when markets over- or under-produce a good.
What is deadweight loss or inefficiency?
Farmers using organic fertilizer can produce more at every price level, shifting this curve to the right.
What is the supply curve?
This concept explains why the demand curve slopes downward: consumers get less utility from each extra unit, so they’ll only buy more at lower prices.
What is the link between diminishing marginal utility and the law of demand?
In this production period, all inputs become variable, allowing firms to change their scale of operation.
What is the long-run?
This mechanism helps restore balance by signaling firms and consumers to adjust their behavior when shortages or surpluses occur.
What is the price mechanism?
When supply increases, total welfare rises even if this group’s surplus might fall due to lower prices.
Who are producers?
In Emily’s example, when music lesson prices fall compared to soccer lessons, both this effect and the substitution effect lead her to buy more music lessons.
What is the income effect?