Demand Basics
The quantity of a good consumers are willing and able to buy at various prices.
demand
A market structure where many sellers offer similar but not identical products.
monopolistic competition
The quantity of a good producers are willing and able to sell at different prices.
supply
The sum of fixed costs and variable costs.
total cost
The quantity of a good bought and sold where supply equals demand.
equilibrium quantity
A motivation that encourages people to act in a certain way.
incentive
When the price of one good rises, consumers buy a cheaper alternative.
substitute effect
This law states that producers will offer more of a good as its price increases.
law of supply
The cost of producing one additional unit of output.
marginal costs
When producers make more of a good than consumers are willing to buy at a certain price.
surplus
This law states that as prices fall, consumers will buy more.
law of demand
Goods that are often used together, like peanut butter and jelly.
complements
The total output produced by a firm with given resources.
total product
the total money a firm earns from selling its output (price × quantity).
total revenue
A government-set maximum price for a product, like rent control.
price ceiling
The additional satisfaction gained from consuming one more unit of a good.
marginal utility
Demand is described this way when price changes have little effect on quantity demanded.
Inelastic
When each additional worker adds less output than the one before.
The additional revenue a firm earns from selling one more unit of output.
marginal revenue
A government-set minimum price for a product, such as minimum wage.
Price floor
The principle that each additional unit of a good provides less satisfaction than the previous one.
diminishing marginal utility
A long-term loan used to buy real estate, repaid with interest.
mortage
Costs that do not change with the level of production, such as rent.
fixed costs
The production level where total costs equal total revenue.
break even point
A condition where markets fail to allocate resources efficiently
Market Failure