Important Definitions for Exam

1. Demand:
An economic principle that describes a consumer's desire and
willingness to pay a price for a specific good or service. Holding all
other factors constant, the price of a good or service increases as its
demand increases and vice versa.
2. Demand Schedule:
Table of the quantity demanded of a good at different price levels. Thus, given
the price level, it is easy to determine the expected quantity demanded. This
demand schedule can be graphed as a continuous demand curve on a chart
having the Y-axis representing price and the X-axis representing quantity.

3. Law of Demand:
'Law Of Demand' A microeconomic law that states, all other
factors being equal, as the price of a good or service increases,
consumer demand for the good or service will decrease, and vice
versa.
4. Diminishing Marginal Utility:
The Law Of Diminishing Marginal Utility is a law of economics stating that
as a person increases consumption of a product - while keeping consumption
of other products constant - there is a decline in the marginal utility that
person derives from consuming each additional unit of that product.
5. Income effect:
the change in an individual's or economy's income and how that change
willimpact the quantity demanded of a good or service.
6. Substitution effect:
The idea that as prices rise (or incomes decrease) consumers will replace
more expensive items with less costly alternatives.
7. Demand curve:
A graph showing how the demand for a commodity or service varies with
changes in its price.

8. Determinants of demand:
The (unit) price of the commodity. The tastes and preferences of the individual
or household. The prices and nature of substitute goods, i.e., goods whose
consumption can replace the consumption of the given good.
9. Normal goods:
Any goodsfor which demand increases when income increases, and falls
when income decreases but price remains constant, i.e. with a positive
income elasticity of demand.
10.
Inferior goods:
A good that decreases in demand when consumer income rises (or rises in
demand when consumer income decreases), unlike normal goods, for which
the opposite is observed.
11.
Substitute good:
Two goods that could be used for the same purpose. If the price of
one good increases, then demand for thesubstitute is likely to rise.
Therefore, substitutes have a positive cross elasticity of demand.
12.
Complementary good:
A complementary good orcomplement is a good with a negative cross
elasticity of demand, in contrast to a substitutegood.
This means a good's demand is increased when the price of another good is
decreased.
13.
Change in demand:
A change in the entire price-quantity relation that makes up
the demandcurve. It means that a different quantity demanded is paired with
a given demand price or that a different demand price is paired with a given
quantity demanded.
14.
Change in quantity demanded:
A term used in economics to describe the total amount of goods or services
that are demanded at any given point in time. The quantity
demanded depends on the price of a good or service in the marketplace,
regardless of whether that market is in equilibrium.

15.

Supply:

The producer's willingness and ability to supply a given good at various price
points, holding all else constant.
16.
Supply schedule:
Table that shows the relationship between the price of a good and the
quantity supplied. The supply curve is a graphical depiction of the supply
schedule that illustrates that relationship between the price of a good and the
quantity supplied
17.

Law of supply:
A fundamental principle of economic theory which states that, all else equal,
an increase in price results in an increase in quantity supplied. In other
words, there is a direct relationship between price and quantity: quantities
respond in the same direction as price changes.

18.
Supply curve:
Graphic representation of the relationship between product price and quantity
of product that a seller is willing and able to supply. Product price is
measured on the vertical axis of the graph and quantity of product supplied on
the horizontal axis.
19.
Determinants of supply:
When price changes, quantity supplied will change. That is a movement
along the same supply curve. When factors other than price
changes,supply curve will shift. Here are some determinants of the supply
curve.
20.
Change in supply:
A term used in economics to describe when the suppliers of a given good or
service have altered their production or output.
21.
Change in quantity supplied:
'Quantity Supplied' A term used in economics to describe the amount of
goods or services that are supplied at a given market price. Graphically, the
amount of goods or services supplied lies at any point along
the supply curve in a price versus quantity plane.

22.

Equilibrium price:

the market pricewhere the quantity of goods supplied is equal to the quantity
of goods demanded. This is the point at which the demand and supply curves
in the market intersect.
23.
Equilibrium quantity:
Equilibrium quantity is simultaneously equal to both the quantity demanded
and quantitysupplied. In a market graph, the equilibrium quantity is found
at the intersection of the demand curve and the supply curve. Equilibrium
quantity is one of two equilibrium variables. The other is equilibrium price.
24.
Surplus:
Surplus is the amount of an asset or resource that exceeds the portion that is
utilized. A surplus is used to describe many excess assets including income,
profits, capital and goods.
25.
Shortage:
A shortage or excess demand is when the demand for a product or service
exceeds its supply in a market. It is the opposite of an excess supply
(surplus).
26.
Price ceiling:
Price ceiling is a situation when the price charged is more than or less than
the equilibrium price determined by market forces of demand and supply. It
has been found that higher price ceilings are ineffective. Price ceiling has
been found to be of great importance in the house rent market.
27.
Price floor:
Price floor is a situation when the price charged is more than or less than
the equilibrium price determined by market forces of demand and supply.