Rational Decision
A decision-making process that is based on making choices that result in the most optimal level of benefit or utility for the individual.
Self Interest
one's personal interest or advantage, especially when pursued without regard for others.
Marginal Benefit
The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service. A person's marginal benefit is the maximum amount they are willing to pay to consume that additional unit of a good or service.
Marginal Cost
the cost added by producing one extra item of a product.
Quantity Demanded
the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the 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.
Substitution Effect
The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives.
Income Effect
In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.
Change in Demand
A term used in economics to describe that there has been a change, or shift in, a market's total demand. This is represented graphically in a price vs. quantity plane, and is a result of more/less entrants into the market, and the changing of consumer pre
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 equilibriu
Normal Good
An economic term used to describe the quantity demanded for a particular good or service as a result of a change in the given level of income. A normal good is one that experiences an increase in demand as the real income of an individual or economy incre
Inferior Good
A type of good for which demand declines as the level of income or real GDP in the economy increases. This occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. An inferior good is the opposite of
Substitute Good
A product or service that satisfies the need of a consumer that another product or service fulfills. A substitute can be perfect or imperfect depending on whether the substitute completely or partially satisfies the consumer. A consumer might consider Pep
Complementary Good
good or service that is used in conjunction with another good or service. Usually, the complementary good has little to no value when consumed alone but, when combined with another good or service, it adds to the overall value of the offering. Also, good
Elastic
(of demand or supply) sensitive to changes in price or income.
Unit Elastic
unit elastic, unit elasticity, unitary elasticity, or unitarily elastic demand when the percentage change in quantity demanded is equal to the percentage change in price (so that Ed = - 1); and.
Inelastic
(of demand or supply) insensitive to changes in price or income.
Revenue
income, especially when of a company or organization and of a substantial nature.
Profit
a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Quantity Supplied
Quantity supplied is the quantity of a commodity that producers are willing to sell at a particular price at a particular point of time. Definition: Quantity supplied is the quantity of a commodity that producers are willing to sell at a particular price
Law of Supply
The law of supply is 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 resp
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.
Change in Quantity Supplied
Movements along the curve occur only if there is a change in quantity supplied caused by a change in the good's own price. A shift in the supply curve, referred to as a change in supply, occurs only if a non-price determinant of supply changes.
Inventory
a complete list of items such as property, goods in stock, or the contents of a building.
Long Run
A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels.
Short Run
taken or considered over a short time period; short-term.
Marginal Product of Labor
In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor.
Diminishing Marginal Productivity
Diminishing marginal productivity is the understanding that using additional inputs will generally increase output, but there also is a point where adding more input will result in a smaller increase in the output, and there is another point where using e
Law of Diminishing Returns
used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
Fixed Cost
Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.
Variable Cost
a cost that varies with the level of output.
Total Cost
Total cost refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained.
Marginal Revenue
The increase in revenue that results from the sale of one additional unit of output. Marginal revenue is calculated by dividing the change in total revenue by the change in output quantity.
Equilibrium
a situation in which supply and demand are matched and prices stable.
Surplus
an amount of something left over when requirements have been met; an excess of production or supply over demand.
Shortage
a state or situation in which something needed cannot be obtained in sufficient amounts.
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. Definition: Price ceiling is a situation when the price charged is more than or less than the equilibrium
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. Definition: Price floor is a situation when the price charged is more than or less than the equilibrium pri
Productive Efficiency
Productive efficiency occurs when the economy is using all of its resources efficiently. The concept is illustrated on a production possibility frontier (PPF) where all points on the curve are points of maximum productive efficiency (i.e., no more output
Allocative Efficiency
Allocative efficiency is a type of economic efficiency in which economy/producers produce only those types of goods and services that are more desirable in the society and also in high demand.