Supply & Demand
Goods that go together or are related, such as cameras and film. Demand for one is linked to demand for the other. If the price of one increases, demand for the other will fall and vice versa.
A factor shaping demand. As consumers’ tastes change, for example in fashion, demand is affected.
The amount of a good or service that people are willing and able to buy at a specified price.
Diminishing Marginal Utility
Economic law stating that the amount of satisfaction derived from a particular good or service will diminish with each successive purchase of that good or service.
The point at which supply and demand intersect. The price at which consumers’ willingness and ability to purchase a good or service converges with producers’ willingness and ability to supply that good or service.
Income Effect on Demand
As incomes change, demand changes. If people’s income declines, their willingness and ability to purchase an item at a given price will also decline. If people’s income increases, their willingness and ability to purchase an item at a given price will also increase.
Law of Demand
This fundamental economic principle states that as prices rise demand will fall, and as prices fall demand will rise.
Law of Supply
This fundamental economic principle states that as prices rise supply will increases, and as prices fall supply will decrease.
The study of individuals, households, and firms, and how they make economic decisions. This is in contrast to macroeconomics, which focuses on the economic actions, in aggregate, of whole societies.
An industry that is controlled by a small number of competitors. Collusion between these companies is prohibited, but it’s very difficult, if not impossible, for a new company to join the oligopoly. New participants may be barred by prohibitive start-up costs, or they may be shut out of a market because consumer attachment to an established brand may be too strong to challenge. The auto and oil oligopolies enjoy the first advantage; the soft drink oligopolies enjoy the second.
Price Elasticity of Demand
Refers to the extent to which the price of a particular product affects demand for that product. For products with “inelastic demand,” demand does not change when prices rise and fall. For products with “elastic demand,” demand does change when prices rise and fall.
A form of collusion in which competitors agree to a common pricing schedule. Price fixing is illegal.
Goods that satisfy the same need as another good, such as Pepsi and Coke. When the price of one changes, demand for the other is affected.