Microeconomics: Market Equilibrium, Elasticity, Production Costs, and Market Structures

Comprehensive vocabulary flashcards covering key microeconomics concepts including supply and demand shifts, market equilibrium, consumer and producer surplus, elasticity measures, production cost behavior, perfect competition, and monopoly.

Inferior Good

A good for which demand increases when consumer income decreases, and demand decreases when consumer income increases.

Normal Good

A good for which an increase in consumer income leads to an increase in demand.

Demand Curve

A graphical representation that illustrates an inverse relationship between the price of a good and the quantity demanded.

Market Failure

A situation where market forces fail to allocate resources efficiently, commonly caused by externalities, public goods, or firms possessing excessive market power.

Consumer Surplus

The difference between a consumer's willingness to pay for a good and the actual price paid for it.

Producer Surplus

The difference between the price a seller receives for a good and the seller's opportunity cost or minimum acceptable price.

Price Elasticity of Demand

A measure of the responsiveness of the quantity demanded to a change in price, calculated using percentage changes; it is usually negative because demand curves slope downward.

Income Elasticity of Demand

The percent change in the quantity demanded of a good divided by the percent change in consumer income.

Cross-Price Elasticity of Demand

A measure of how the quantity demanded of one good responds to a change in the price of another good; it is negative for complements and positive for substitutes.

Complements

Pairs of goods for which an increase in the price of one good leads to a decrease in the demand for the other good, resulting in a negative cross-price elasticity of demand.

Substitutes

Pairs of goods for which an increase in the price of one good leads to an increase in the demand for the other good, resulting in a positive cross-price elasticity of demand.

Perfectly Elastic Demand Curve

A horizontal demand curve along which consumers are willing to buy any quantity at a single given price, but demand drops to zero if the price increases even slightly.

Implicit Cost of Capital

The opportunity cost of using capital owned by the firm or business owner, represented by the potential income forgone by not deploying that capital in its next best alternative use.

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should be ignored when evaluating future economic decisions.

Economic Profit

A firm's total revenue minus its total opportunity costs, encompassing both explicit costs and implicit costs.

Fixed Input

An input to production whose quantity cannot be changed in the short run.

Variable Input

An input whose quantity can be altered or varied by the firm in the short run to adjust output levels.

Total Product Curve

A curve showing how the total quantity of output depends on the quantity of the variable input, for a given quantity of the fixed input.

Marginal Product

The additional quantity of output produced by adding one more unit of a variable input.

Spreading Effect

The decrease in average fixed cost that occurs when a firm increases output because fixed costs remain unchanged and are divided by a larger quantity of output.

Marginal Revenue ($MR$)

The change in total revenue divided by the change in quantity of output produced ($\Delta TR / \Delta Q$).

Price-Taking Producer

A producer whose actions have no effect on the market price of the good or service that they sell, typical of firms in perfect competition.

Short-Run Industry Supply Curve

A curve showing how the total quantity supplied by an entire industry depends on the market price, given a fixed number of producing firms in the industry.

Long-Run Market Equilibrium

The state where industry quantity supplied equals quantity demanded, after sufficient time has passed for firms to enter or exit the industry.

Deadweight Loss

The lost total economic surplus resulting from an inefficiency or market distortion (such as monopoly pricing) that prevents mutually beneficial trades from occurring.

Perfect Price Discrimination

A pricing strategy under which a monopolist charges each consumer their exact willingness to pay, producing the competitive output level and capturing all consumer surplus as profit.