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Scarcity

Condition of limited resources unable to satisfy infinite needs

Choice

Decision on what, how, and for whom to produce

Opportunity Cost

Cost of the next best alternative foregone

Market

Arrangement linking buyers and sellers for exchange

Demand

Quantities of a good consumers are willing to buy

Law of demand

Price decrease leads to quantity demanded increase

Market Demand

Sum of all individual consumer demands

Supply

Quantities of a good firms are willing to produce

Law of supply

Price increase leads to quantity supplied increase

Market Supply

Sum of all individual firm supplies

Market Equilibrium

Quantity demanded equals quantity supplied

Consumer Surplus

Difference between highest price consumers willing to pay and actual price

Producer Surplus

Difference between price received and lowest price firms accept

Price Elasticity of Demand (PED)

Responsiveness of quantity demanded to price changes

Cross Elasticity of Demand (XED)

Responsiveness of demand for one good to price change of another

Income Elasticity of Demand (YED)

Responsiveness of demand to income changes

Price Elasticity of Supply (PES)

Responsiveness of quantity supplied to price changes

Indirect Tax

Taxes on spending paid indirectly by consumers through suppliers

Specific Tax

Tax calculated per unit of goods/services sold

Ad Valorem Tax

Tax calculated as a percentage of the price

Subsidy

Money paid by government to firms for various reasons

Price Ceiling

Maximum price set by government for a good

Price Floor

Minimum price set by government for a good

Market Failure

Inefficient allocation of resources by the market

Costs

Payments made by a firm to acquire resources for production

Implicit costs

Sacrificed income from using self-owned resources

Fixed costs

Arise from fixed inputs

Variable costs

Arise from variable inputs

Total cost (TC)

Sum of fixed and variable costs

Marginal cost (MC)

Increase in total cost from producing one more unit

Total fixed cost (TFC)

Cost of fixed assets

Total variable cost (TVC)

Cost of variable inputs

Average fixed cost (AFC)

Fixed cost per unit of output

Average variable cost (AVC)

Variable cost per unit of output

Average total cost (ATC)

Total cost per unit of output

Constant returns to scale

Output increases proportionally with all inputs

Increasing returns to scale

Output increases more than input increase

Decreasing returns to scale

Output increases less than input increase

Economies of scale

Decrease in long-run average costs with increased output

Diseconomies of scale

Increase in long-run average costs with output increase

Specialisation

Concentrating production on few goods or services

Indivisibility

Something unable to be divided into parts

Total revenue (TR)

Money received from selling goods or services

Average revenue (AR)

Revenue per unit of sales

Marginal revenue (MR)

Extra revenue from selling one more unit

Economic profit

Total revenue minus total economic costs

Abnormal profit

Positive economic profit

Normal profit

Revenue needed to sustain the business

Break-even point

Output level where all costs are covered