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Economics Essay

1310 words - 6 pages

Opportunity cost – the value of the next best alternative sacrificed when we make a choice. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book.
Ceteris paribus - "all other things being equal". In economics and finance, the term is used as all else equal or a shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second ...view middle of the document...

Law of demand- 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. The law of demand says that the higher the price, the lower the quantity demanded, because consumers’ opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product.
Willingness to pay -In economics, the willingness to pay is the maximum amount a person would be willing to pay, sacrifice or exchange in order to receive a good or to avoid something undesired
Inferior goods - 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 a normal good, which experiences an increase in demand along with increases in the income level. Inferior goods can be viewed as anything a consumer would demand less of if they had a higher level of real income
Substitute goods - 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 Pepsi to be a perfect substitute for Coke. For a product to be a substitute of another good, it must share a particular relationship with that good. When a good's price increases, the demand for its substitute will increase because consumers will go looking for a cheaper alternative.
Price floor- A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be paid for labor. Price floors are also used often in agriculture to try to protect farmers. For a price floor to be effective, it must be set above the equilibrium price. If it's not above equilibrium, then the market won't sell below equilibrium and the price floor will be irrelevant.
Consumer surplus- An economic measure of consumer satisfaction, which is calculated by analyzing the difference between what consumers are willing to pay for a good or service relative to its market price. A consumer surplus occurs when the consumer is willing to pay more for a given product than the current market price. Consumers always like to feel like they are getting a good deal on the goods and services they buy and consumer surplus is simply an economic measure of this satisfaction. For example, assume a consumer goes out shopping for a CD player and he or she is willing to spend $250. When this individual finds that the player is on sale for $150, economists would say that this person has a consumer surplus of $100.
Wage elasticity of a labor...

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