Section 2.2: Demand Definitions Demand – the quantity of a good or service that consumers (buyers) are willing and able to buy at a given price in a given period of time. The law of demand - the quantity demanded of a good will usually increase as price falls; and the quantity demanded will usually fall as price rises, all other things being equal (ceteris paribus). Demand function - an equation showing the mathematical relationship between the quantity demanded of a good and the various determinants of demand. Joint demand - Goods which are interdependent/demanded together (complements) Competitive demand - Demand for goods that are in competition with each other Composite demand - Demand for a good that has multiple uses Section 2.3: Supply Definitions Supply – the quantity of goods/services that producers are willing and able to sell at a given price, in a given period of time. Law of Supply - As the price goes up quantity supplied will usually increase, and as the price falls the quantity supplied will usually fall; there is usually a positive relationship between price and quantity supplied. Individual supply - The supply of a product by one producer. Market supply - The supply of a product by all producers in a market Joint supply - When a firm produces more than one product together Competitive supply - A firm can use its resources to produce more than one product. Section 2.5: Markets Definitions Market - where buyers and sellers interact to exchange goods and services. Ceteris paribus - All other things being equal. Market equilibrium - Where quantity demanded equals quantity supplied. Market disequilibrium - Where quantity demanded does not equal quantity supplied (excess demand or excess supply). Price mechanism - how market prices act to signal information to economic agents, and provide incentives, to ration/allocate scarce resources amongst competing uses. Section 2.4: Consumer and Producer Surplus Definitions Consumer surplus - The difference between what a consumer is prepared to pay for a good and the price they actually pay The effects of changes in price on consumer surplus - If price goes up consumer surplus decreases (goes up with a fall in price) Producer surplus - The difference between the price a producer is prepared to supply a good for and the price they actually receive The effects of changes in price on producer surplus - If price goes up producer surplus increases (producer surplus falls with a fall in price) Section 2.6: Elasticities Definitions Price elasticity of demand (PED) - measures the responsiveness of quantity demanded of a product to a change in its price. Income elasticity of demand (PED) - measures the responsiveness of quantity demanded of a product to a change in income (Y). Cross price (X) elasticity of demand - measures the responsiveness of quantity demanded of one product to a change in price of another product. Price elasticity of supply - measures the responsiveness of quantity supplied of a product to a change in its price Section 2.7: Margin Definitions Marginal revenue (MR) - the additional revenue for producers from the sale of an additional unit of a good/service. Marginal cost (MC) - the additional cost to producers of producing an additional unit of output. Marginal profit/loss (=MR-MC) - the addition to profit/loss of producing an additional unit of output Marginal utility of a product is the additional utility derived from consumption of an additional unit of the product over a specified time period. The Law of Diminishing Marginal Utility states that as more units of a good are consumed, successive units will bring a smaller addition to total utility than the previous unit.
