Economic Terms

The increase in output that arises from the application of the last unit of capital stock.

The proportion of an increase in income that households are likely to consume.

The proportion of an increase in income that households are likely to save.

The total benefit enjoyed by consumers and third parties from the consumption of an additional unit of a good or service.

The total cost incurred by suppliers and third parties due to the production of an additional unit of a good or service.

The utility received from purchasing an extra unit of a good.

Below is a table that shows how the level of marginal utility differs from total utility. It is a general feature of consumer preferences that the larger the quantity of a particular good a consumer consumes the less utility the consumer receives for each additional unit. This is because the more of a good that a consumer consumes/buys the less value they derive from it. However, as long as the marginal utility does not become negative, consuming extra units of the good will still increase the level of total utility accruing to the consumer. This is the basic property of monotonicity that all consumers have.

A physical or virtual location where buyers and sellers are able to buy and sell goods and services.

The price at which quantity demanded is equal to quantity supplied. There is no momentum from demand and supply imbalances for price or output to change.

Below is a diagram which shows the clearing price in both an individual goods market as well as the economy.

The total demand for a particular good or service i.e. the sum of the individual demand of all consumers.

Below is an example of how to derive the market demand curve. At every individual price it needs to be calculated how many consumers are willing to buy a certain amount of goods. This is shown in the table below.

Below is the illustration of the market demand curve using the data in the table. As can be seen from the graph, the demand curve for the market has the same basic downward-sloping shape as the individual demand curve, to signify that the law of demand still holds for the market as it does for the individual demand curves.

A system where the market forces of demand and supply determine what is produced, how it is produced and who it is produced for, without any government intervention.