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Aggregate Demand
The combined demand of all buyers in a market.
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Aggregate Supply
The combined supply of all sellers in a market.
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Buyer
Someone who purchases goods and services from a seller for money.
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Complementary Good
A good is called a complementary good if the demand for the good increases with demand for another good. One extreme example: right shoes are complementary goods for left shoes.
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Demand
Demand refers to the amount of goods and services that buyers are willing to purchase. Typically, demand decreases with increases in price, this trend can be graphically represented with a demand curve. Demand can be affected by changes in income, changes in price, and changes in relative price.
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Demand Curve
A demand curve is the graphical representation of the relationship between quantities of goods and services that buyers are willing to purchase and the price of those goods and services.
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Equilibrium Price
The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market-clearing price.
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Equilibrium Quantity
Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage.
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Firm
Unit of sellers in microeconomics. Because it is seen as one selling unit in microeconomics, a firm will make coordinated efforts to maximize its profit through sales of its goods and services. The combined actions and preferences of all firms in a market will determine the appearance and behavior of the supply curve.
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Goods and Services
Products or work that can be bought and sold. In a market economy, competition among buyers and sellers sets the market equilibrium, determining the price and the quantity sold.
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Horizontal addition
The process of adding together all quantities demanded at each price level to find aggregate supply or aggregate demand.
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Household
Unit of buyers in microeconomics. Because it is seen as one buying unit in microeconomics, a household will make coordinated efforts to maximize its utility through its choices of goods and services. The combined actions and preferences of all households in a market will determine the appearance and behavior of the demand curve.
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Labor market
A large group of firms and workers in the same industry: the firms want to hire workers, the workers want jobs. The interaction between the two groups determines the market wage and quantity of labor used.
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Law of Diminishing Returns
Concept that the marginal revenue derived from additional units of labor decreases as quantities of labor increases.
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Marginal Product
The additional amount of goods generated by using one more unit of work.
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Marginal Revenue Product
The additional income generated by using one more unit of input.
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Marginal Revenue Product of Labor
The additional income generated by using one more unit of work.
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Market
A large group of buyers and sellers who are buying and selling the same good or service.
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Market-clearing Price
The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the equilibrium price.
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Optimization
To maximize utility by making the most effective use of available resources, whether they be money, goods, or other factors.
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Price Ceiling
Maximum price set by the government on a specific good. Usually is set below market price, causing a shortage.
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Price Floor
Minimum price set by the government on a specific good. Usually is set above market price, causing a surplus.
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Revenue
The income a firm makes from selling its products. Revenue as equal to price per unit times quantity sold, (P)x(Q).
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Seller
Someone who sells goods and services to a buyer for money.
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Supply
Supply refers to the amount of goods and services that sellers are willing to sell. Typically, supply increases with increases in price, this trend can be graphically represented with a supply curve.
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Supply Curve
A supply curve is the graphical representation of the relationship between quantities of goods and services that sellers are willing to sell and the price of those goods and services.
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Surplus
Situation in which the quantity supplied exceeds the quantity demanded for goods and services or labor; in this situation, the price (or wage) is above the equilibrium price (or wage).
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Wage
Price per unit of time when the good being sold is some form of labor or work (instead of a physical product).
