Market equilibrium occurs when the quantity demanded is equal to the quantity supplied. In a curve, it represents the point of intersection between the demand curve and the supply curve. At the equilibrium point, the market determines prices and
Microeconomics
What is Labor in Economics
What's it: As a factor of production, labor refers to the workers' efforts (physical and mental) used in the production process. It connotes what the individual contributes (services), not refer to the individual himself (workers). So, labor can
Scarcity in Economics: Its Relation to Resources, Needs, and Wants
What's it: Scarcity is a finite state, so it cannot fulfill something. In the introduction to economics, scarcity represents a condition in which limited resources cannot satisfy our needs and wants, which are unlimited. Economic
Elastic Demand: Meaning, How to Calculate It
Elastic demand means the quantity demanded is responsive to price changes. When prices rise by 5%, according to the law of demand, the quantity demanded falls by more than 5%. Conversely, when prices fall by 5%, the quantity demanded rises by more
Luxury Goods: Meaning and Its Elasticity
Luxury goods are types of goods whose demand is higher than the increase in consumer income. Consumers ask for more when their income rises. Although they don't always have a high-quality connotation, they are often considered to be at the top in
Inferior Goods: Meaning, Its Price Elasticity
Inferior goods are groups of goods whose demand falls when consumer income rises. And, in economics, the demand for goods has a negative income elasticity (<0). Inferior good elasticity We use income elasticity to categorize goods as
Unitary Elastic of Demand: Meaning and Explanation
Unitary elasticity of demand is a situation in which the price change affects the quantity demanded at an equivalent percentage. For example, when the price of a good rises 3%, the quantity demanded decreases by 3%. And, when the price drops by 3%,
Normal Goods: Meaning, Elasticity
Normal goods are groups of products whose demand increases when consumer incomes rise. Conversely, when consumer incomes fall, demand for them also falls. Various items of your daily needs, such as soap, tea, clothes, coffee, are examples of
Income elasticity of demand: Meaning, Formula, How to Calculate
How responsive changes in income affect demand is income elasticity (income elasticity of demand). Income is one of the determinants of demand for a product—the demand quantity changes when income changes. In general, the quantity of demand
Excess Supply: Meaning, How to Calculate, Causes, Impacts
Excess supply occurs when the quantity supplied is higher than the quantity demanded. In this situation, price is above the equilibrium price, and, therefore, there is downward pressure on the price. This term also refers to production surplus,
Market Demand: Definition, How to Calculate, Determinants
What's it: Market demand is the sum of individual demand in the market at a given price. Economists define demand as our willingness and ability as consumers to buy goods or services for any given price combination. The more consumers
Excess Demand: Meaning, How to Calculate, Causes
Excess demand occurs when the quantity demanded exceeds the quantity supplied. In this situation, the market price is below the equilibrium price. And, when the mechanism works, the price will rise towards its new equilibrium. The term we also
Supply: Meaning, Factors Affecting It
In economics, supply represents the quantity that producers are willing and able to supply at a certain price. That is a fundamental economic concept besides demand. Producers exist to meet consumer demand. If the individual motive is satisfaction
Concentration Ratio: Meaning, Formula, How to Calculate, Pros, Cons
Concentration ratio (CR) measures the market dominance of the largest companies. We calculate this by adding up the market share of the largest N-companies. In general, this ratio tells us the market concentration on big companies. Although the
Consumer Choice Theory: Rationale and Axioms
Consumer choice theory links the consumer demand curve with consumer preferences. This theory views that consumers fully understand what they choose. The rationale behind consumer choice theory When dealing with several consumption bundles,
Utility Function: Why It Matters, How It Works
Utility function is a mathematical representation of the satisfaction (utility) of consumption of a basket of goods. The function translates each bundle of products and services into an unit (utils). Why is the utility function important? The
Substitution Effect: Meaning, Impacts, Types of Goods
The substitution effect is a change in consumption patterns due to changes in the relative prices of goods and services. Consumers replace more expensive products with cheaper ones. So, if the price of a product rises, consumers switch and increase
Substitute Goods: Meaning, Elasticity, Examples
Substitute goods refer to two or more goods that meet similar needs, so they become alternatives to each other. For example, Coca-Cola is a close substitute for Pepsi. Because it is an alternative, consumers switch to their substitutes when
Income Effect: Meaning, Implications
The income effect measures the impact of changes in purchasing power on demand. It can be positive or negative. We measure the purchasing power of consumers from real income, namely nominal income, after adjusting for the price of the goods. It is
Market Structure: Meaning, Types, Characteristics, How to Determine
Market structure refers to the characteristics of market organizations that determine the behavior of companies in an industry. It determines the nature of competition and price and has implications for the market share and profits that companies
What is the Law of Demand? How does it work?
What's it: The law of demand is a principle in microeconomics, stating a negative relationship between a good's price and its quantity demanded. The quantity demanded increases when the price falls, assuming other factors are unchanged