When a good's price rises, consumers shift some of their purchases toward now-relatively-cheaper substitutes; this substitution away from the pricier good is one reason the demand curve slopes downward.

A price change alters a consumer's real purchasing power; a higher price effectively makes the consumer poorer, reducing the quantity bought and reinforcing the law of demand.

A measure of how strongly quantity demanded responds to a price change, found by dividing the percent change in quantity demanded by the percent change in price (ignoring the minus sign).

A technique for computing elasticity that uses the average of the starting and ending values as the base for each percent change, so the result is identical whether the price rises or falls.

Quantity demanded does not change at all when price changes, giving an elasticity of zero and a vertical demand curve.

Buyers will purchase any amount at one particular price but nothing above it, giving an infinite elasticity and a horizontal demand curve.

A price elasticity greater than 1, meaning quantity demanded changes more than proportionally to a price change.

A price elasticity less than 1, meaning quantity demanded changes less than proportionally to a price change.

A price elasticity exactly equal to 1, so the percent change in quantity demanded matches the percent change in price.

The total value of sales, equal to the price multiplied by the quantity sold.

A price increase raises revenue earned per unit (price effect) but reduces units sold (quantity effect); which force dominates determines whether total revenue rises or falls.

If demand is elastic, raising price lowers total revenue; if demand is inelastic, raising price increases total revenue; if unit-elastic, total revenue is unchanged.

Along a straight-line demand curve, demand is elastic at high prices and inelastic at low prices, so a good's elasticity is measured at a specific point.

Demand is more elastic when close substitutes exist, when the good is a luxury rather than a necessity, when it absorbs a large share of income, and when more time has passed since the price change.

The percent change in demand for one good divided by the percent change in another good's price; it is positive for substitutes and negative for complements.

The percent change in quantity demanded divided by the percent change in income; it is positive for normal goods and negative for inferior goods.

An income elasticity greater than 1, where demand for the good grows faster than income, as is typical of luxuries.

A positive income elasticity below 1, where demand rises with income but more slowly, as is typical of necessities.

The percent change in quantity supplied divided by the percent change in price, measuring how responsive producers are to price changes.

Quantity supplied stays fixed no matter the price, giving a vertical supply curve.

Producers will supply any quantity at a particular price but none below it, giving a horizontal supply curve.

Supply is more elastic when additional inputs can be obtained cheaply and easily and when more time has passed since the price change.

The highest price a consumer is prepared to pay for a good; it sets the height of the demand curve.

The net benefit a single buyer gains from a purchase, equal to willingness to pay minus the price actually paid.

The combined surplus of all buyers in a market, shown graphically as the area beneath the demand curve and above the market price.

The lowest price a producer will accept to supply a unit, reflecting the value of the resources used to make it.

The net gain a single seller earns, equal to the price received minus the seller's cost.

The combined surplus of all sellers, shown as the area above the supply curve and below the market price.

The overall gain to society from a market, equal to consumer surplus plus producer surplus.

A higher market price transfers surplus from consumers to producers, while a lower price shifts surplus from producers to consumers.

A competitive market usually maximizes total surplus, so no reshuffling of who consumes or produces can make anyone better off without making someone else worse off.

Markets tend toward efficiency, but because society also values fairness, a policy that lowers efficiency can still be worthwhile if it improves equity.

A tax on the sale or purchase of a particular good that raises the price buyers pay and lowers the price sellers keep.

The gap an excise tax drives between the price consumers pay and the price producers receive, equal to the amount of the tax.

How the burden of a tax is divided between buyers and sellers; it does not depend on which party legally sends the tax to the government.

The heavier tax burden falls on whichever side of the market is less elastic; if demand is less elastic than supply, consumers bear most of the tax.

The loss of total surplus when a tax or other distortion discourages mutually beneficial transactions, shown as a triangle that grows larger the more elastic supply or demand is.

The money a tax raises, equal to the tax per unit times the number of units still bought and sold.

The resources used to collect, comply with, and evade a tax, over and above the tax payment itself.

A tax that takes a larger fraction of income as income rises.

A tax that takes a smaller fraction of income as income rises.

A tax that takes the same fraction of income at every income level.

A fixed tax owed equally by everyone regardless of their behavior; because it does not distort choices, it creates no deadweight loss.

A measure of the satisfaction a consumer receives from consuming goods and services.

The hypothetical unit economists use to quantify a consumer's utility.

The overall satisfaction a consumer gains from an entire consumption bundle.

The additional utility obtained from consuming one more unit of a good or service.

A graph of how marginal utility changes as more of a good is consumed; it generally slopes downward.

Each successive unit of a good consumed adds less extra satisfaction than the unit before it.

The requirement that a consumer's total spending cannot exceed his or her income.

The full set of consumption bundles a consumer can afford given current income and prices.

The boundary of the budget constraint, showing every bundle a consumer can buy when spending all available income.

The affordable combination of goods that gives the consumer the greatest possible total utility.

The marginal utility of a good divided by its price, showing the extra satisfaction gained from the last dollar spent on it.

Total utility is maximized when the marginal utility per dollar is the same for every good the consumer buys.

Because buyers barely change how much they want when the price moves, the price of flu vaccine is driven mainly by how much supply is available.

As household income rises, the share of income spent on food falls, reflecting the low income elasticity of demand for food.

A rare exception to the law of demand in which a price rise increases quantity demanded, because for a staple good a strong income effect outweighs the substitution effect.

Since selling kidneys for transplant is illegal, organs are rationed through a waiting-list system run by UNOS rather than by price, a real case of non-price allocation and surplus.