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MARGINAL UTILITY AND DEMAND: An explanation of the law of demand and the negatively-sloped demand curve can be found in the analysis of marginal utility and especially the law of diminishing marginal utility. This explanation rests on two propositions. One, the law of diminishing marginal utility means that the marginal utility obtained from consuming a good declines as the quantity consumed increases. Two, the marginal utility of a good underlies the demand price that buyers are willing and able to pay for a good. When combined, these two propositions indicate that the demand price buyers are willing and able to pay for a good declines as the quantity demanded (and consumed) increases. And this is the law of demand.

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Lesson 7: Market Equilibrium | Unit 1: The Exchange Page: 5 of 22

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  • The concept of markets as voluntary trades among buyers and sellers that is used to address the scarcity problem.
  • Four key points about markets:
    • They combine demand and supply.
    • They trade goods, services, and resources.
    • They are voluntary.
    • They are analyzed over a give time period.
  • Examples of different markets, ranging from a formal, organized stock market to a less formal, less organized rummage sale.
  • The nature of market equilibrium as a balance of the forces of demand and supply.
  • How market equilibrium is indicated by the equilibrium quantity and equilibrium price.
  • The importance of competition to the efficient operation of markets and how the number of participants determines competition among buyers and sellers.


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ACCOUNTING PROFIT

The difference between the revenue received by a firm and the explicit accounting cost incurred. This is the profit listed on a firm's balance sheet, appears periodically in the financial sector of the newspaper, and is reported to the Internal Revenue Service for tax purposes. While accounting profit is the "standard" designation of profit used in the business world, economists prefer to use economic profit

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GREEN LOGIGUIN
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Today, you are likely to spend a great deal of time at a flea market trying to buy either a brown leather attache case or car battery jumper cables. Be on the lookout for strangers with large satchels of used undergarments.
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In his older years, Andrew Carnegie seldom carried money because he was offended by its sight and touch.
"I much prefer the sharpest criticism of a single intelligent man to the thoughtless approval of the masses."

-- Johannes Kepler, German Astronomer

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Labor Force, Laissez-Faire
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