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Microeconomics
The branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact.
Household
A person or group of people who share their income.
Firm
An organization, typically a business, that produces goods or services.
Macroeconomics
The branch of economics concerned with the overall ups and downs of the economy.
Model
A simplified representation used to better understand a real-life situation.
Other things equal assumption
The assumption that all other relevant factors remain unchanged; also known as the ceteris paribus assumption.
Production possibilities curve
Illustrates the necessary trade-offs in an economy that produces only two goods.
Efficient
Describes a market or economy in which there is no way to make anyone better off without making at least one person worse off.
Economic growth
An increase in the maximum amount of goods and services an economy can produce.
Technology
The technical means for producing goods and services.
Trade
When individuals provide goods and services to others and receive goods and services in return.
Specialization
A situation in which each person specializes in the task that they are good at performing.
Comparative advantage
The advantage held by an individual if their opportunity cost of producing a good or service is lowest.
Absolute advantage
The advantage held by an individual when they can produce more with a given amount of time and resources.
Terms of trade
Indicate the rate at which one good can be exchanged for another.
Demand schedule
A table that shows how much of a good or service consumers will be willing and able to buy at different prices.
Quantity demanded
The actual amount of a good or service consumers are willing and able to buy at a specific price.
Demand curve
A graphical representation of the demand schedule; shows the relationship between quantity demanded and price.
Law of demand
Says that a higher price leads to a smaller quantity demanded, all other things being equal.
Change in demand
A shift of the demand curve, altering quantity demanded at any given price.
Movements along the demand curve
A change in the quantity demanded due to a change in the good’s price.
Substitutes
Two goods for which a rise in the price of one leads to an increase in demand for the other.
Complements
Two goods, often consumed together, for which a rise in the price of one leads to a decrease in demand for the other.
Normal goods
Goods for which a rise in income increases the demand.
Inferior goods
Goods for which a rise in income decreases the demand.
Quantity supplied
The actual amount of a good or service suppliers are willing to sell at a specific price.
Supply schedule
Shows how much of a good or service producers would supply at different prices.
Supply curve
Shows the relationship between quantity supplied and price.
Law of supply
States that price and quantity supplied are positively related, assuming other factors are constant.
Change in supply
A shift of the supply curve indicating a change in quantity supplied at any given price.
Movements along the supply curve
A change in quantity supplied arising from a change in the good’s price.
Input
A good or service used to produce another good or service.
Substitutes in production
Two goods for which producers can use the same inputs to produce either good.
Complements in production
Two goods for which increased production of one creates more of the other.
Equilibrium
An economic situation in which no individual would be better off doing something different.
Equilibrium price
The price at which quantity demanded equals quantity supplied.
Equilibrium quantity
The quantity of a good bought and sold at its equilibrium price.
Disequilibrium
When the market price is above or below the price that equates quantity demanded with quantity supplied.
Surplus
Occurs when quantity supplied exceeds quantity demanded; occurs when the price is above its equilibrium level.
Shortage
Occurs when quantity demanded exceeds quantity supplied; occurs when the price is below its equilibrium level.
