Glossary
Complements (as a shifter)
Goods that are typically consumed together; a change in the price of a complement affects the demand for the original good.
Example:
An increase in the price of hot dogs would likely decrease the demand for hot dog buns (a complement).
Consumers
Individuals or households who purchase and use goods and services to satisfy their wants and needs.
Example:
When you buy a new video game, you are acting as a consumer in the gaming market.
Demand
The entire relationship between the price of a good and the quantity consumers are willing and able to buy at various prices, represented by the entire demand curve.
Example:
The overall demand for electric vehicles has increased significantly due to environmental concerns and technological advancements.
Demand curve
A graphical representation showing the inverse relationship between the price of a good and the quantity demanded, typically sloping downward.
Example:
A shift to the right of the demand curve for organic food indicates an increase in consumer preference for healthier options.
Expectations (as a shifter)
A determinant of demand where consumers' beliefs about future prices or availability influence their current purchasing decisions.
Example:
If consumers have expectations (as a shifter) that gas prices will rise next week, they might fill up their tanks today, increasing current demand.
Income (as a shifter)
A determinant of demand where changes in consumer income affect the quantity demanded at every price level.
Example:
An increase in average household income (as a shifter) often leads to an increased demand for luxury goods.
Income Effect
The change in quantity demanded due to a change in consumers' purchasing power caused by a change in the price of a good.
Example:
When the price of gasoline increases, your real income effectively decreases, leading to an income effect where you might drive less.
Inferior good
A type of good for which demand decreases as consumer income increases, and increases as income decreases.
Example:
Public transportation might be considered an inferior good for some, as they switch to driving their own car once their income allows.
Law of Demand
An economic principle stating that, all else being equal, as the price of a good increases, the quantity demanded decreases, and vice versa.
Example:
Because of the Law of Demand, when the price of concert tickets dropped, more people wanted to buy them.
Law of Diminishing Marginal Utility
The principle that as a consumer consumes more units of a good, the additional satisfaction (utility) gained from each successive unit decreases.
Example:
While the first slice of pizza is amazing, the tenth slice provides very little additional satisfaction, illustrating the Law of Diminishing Marginal Utility.
Market
A place or system where buyers (consumers) and sellers (producers) interact to exchange goods and services.
Example:
The local farmers' market is a perfect example of a market where fresh produce is bought and sold.
Normal good
A type of good for which demand increases as consumer income increases, and decreases as income decreases.
Example:
For most people, dining out at restaurants is a normal good; they eat out more often when their income rises.
Number of Consumers (as a shifter)
A determinant of demand where an increase or decrease in the total population or market size affects the overall demand for a good.
Example:
A baby boom would increase the number of consumers (as a shifter) for baby products, shifting their demand curve rightward.
Price (on graph)
The monetary value of a good or service, typically represented on the y-axis of economic graphs.
Example:
The price (on graph) of a movie ticket is plotted on the vertical axis to show its relationship with the number of tickets demanded.
Producers
Firms or individuals who create and offer goods and services for sale in a market.
Example:
A bakery is a producer of bread and pastries, offering them to customers.
Quantity (on graph)
The amount of a good or service, typically represented on the x-axis of economic graphs.
Example:
On a demand curve, the quantity (on graph) of smartphones demanded is shown on the horizontal axis.
Quantity demanded
The specific amount of a good or service consumers are willing and able to buy at a particular price, represented as a single point on the demand curve.
Example:
If apples are $2 per pound, the quantity demanded might be 500 pounds, which is a specific point on the demand curve.
Quantity of a good
The specific amount of a product that consumers are willing and able to purchase.
Example:
At $5 per cup, the quantity of a good (coffee) demanded might be 100 cups per day.
Shifting Demand
A change in the entire demand curve, either to the left or right, caused by factors other than the good's own price.
Example:
A new health report praising the benefits of avocados could lead to shifting demand for them to the right.
Substitutes (as a shifter)
Goods that can be used in place of another good; a change in the price of a substitute affects the demand for the original good.
Example:
If the price of Netflix subscriptions drops, the demand for movie theater tickets (a substitute) might decrease.
Substitution Effect
The change in quantity demanded due to a change in the relative price of a good, causing consumers to switch to cheaper alternatives.
Example:
If the price of beef rises sharply, many consumers will experience the substitution effect and buy more chicken or pork instead.
Tastes (as a shifter)
A determinant of demand referring to changes in consumer preferences, trends, or popularity that affect the demand for a good.
Example:
If a celebrity endorses a new fashion trend, the tastes (as a shifter) for that style of clothing will increase, shifting its demand curve right.
Willing and able
The two conditions necessary for demand to exist: consumers must desire a good and have the financial means to purchase it.
Example:
Even if you are willing to buy a luxury car, you must also be able to afford it for your desire to translate into economic demand.