Microeconomics and Market Fundamentals Vocabulary Flashcards

A complete set of vocabulary flashcards covering basic economic concepts, demand, supply, market equilibrium, and price elasticity based on the provided lecture notes.

Macroeconomics

Deals with aggregate economic indicators and policies that affect the entire economy, such as GDP, unemployment, inflation, and government policies.

Microeconomics

Focuses on how individuals, households, and businesses make decisions about resource allocation, including supply, demand, pricing, consumer behavior, and business decisions.

Market

The interaction of buyers and sellers, which has shifted from requiring a physical venue to the act of buying and selling regardless of the medium.

Price

The mode of communication between buyers and sellers in a market.

Product Market

Also known as the commodity market, it is where the purchasing of most physical goods takes place.

Financial Market

The market where stocks, bonds, and securities are bought and sold, as well as currencies such as foreign currency and cryptocurrency.

Labor Market

The market involving companies hiring from a pool of employed and unemployed individuals.

Demand

The willingness and ability of a consumer to purchase a certain quantity of a good or service at a specific price.

Demand Equation

Mathematically expressed as $Qd = a - bP$, where $Qd$ is quantity demanded, $a$ represents non-price factors, $b$ is the slope of the demand curve, and $P$ is price.

Demand Schedule

A table showing the quantity demanded of a good or service at different price levels, representing the set of prices a consumer is willing to pay.

Demand Curve

A graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time, generally sloping down from left to right.

Law of Demand

The economic law stating that price and quantity demanded are inversely related; as price increases, quantity demanded decreases.

Demand Function

Represented mathematically as $D = f\{a\} = f\{T, Y, E, PR\}$, where $D$ is Demand, $a$ is non-price factors, $T$ is Tastes, $Y$ is Income, $E$ is Expectations/Events, and $PR$ is Price of Related Goods.

Income Effect

Any change to the demand curve due to a change in the purchasing power of the consumer.

Substitution Effect

A shift in demand due to multiple factors including expectations and events, consumer tastes and preferences, and prices of related goods.

Substitute Goods

Goods that consumers buy as replacements for other goods whose prices have increased.

Complementary Goods

Goods consumed together, where the consumption of one entails the consumption of the other.

Products

A combination of raw materials with the intervention of labor and technology, produced for the financial incentive of earning profit.

Supply

The amount of a product or service that a producer is willing and able to sell at alternative prices at a given point in time.

Supply Equation

Mathematically expressed as $Qs = c + dP$, where $Qs$ is quantity supplied, $c$ is the non-price factor of supply, $d$ is the slope of the demand curve, and $P$ is price.

Supply Schedule

A table showing the quantity supplied for a good or service at different price levels.

Supply Curve

A graphical representation of the relationship between the price of a good or service and the quantity supplied for a given period of time, generally sloping up from left to right.

Law of Supply

The principle stating that as the price of a good or service increases, the quantity supplied by producers also increases, and vice versa, ceteris paribus.

Supply Function

Represented mathematically as $S = f\{c\} = f\{C, T, AR\}$, where $S$ is Supply, $C$ is cost of production, $T$ is technology, and $AR$ is availability of resources.

Theory of Price

A framework for understanding how prices are determined in a market economy through the interplay of supply and demand and how these prices influence economic behavior and resource allocation.

Market Equilibrium

The theoretical condition where supply equals demand for a product, represented by the price point where hypothetical supply and demand curves intersect.

Price Elasticity of Demand

A measure of how a change in price affects a product's demand, calculated mathematically as $Ed = \frac{\%\Delta Qd}{\%\Delta P}$.

Discretionary Purchase

A non-essential cost or purchase that individuals or businesses can forego without significantly impacting their day-to-day operations or survival.

Perfectly Elastic Demand

A state of demand elasticity where the calculated value is $\infty$, meaning demand declines to zero with any change in price.

Unitary Elasticity of Demand

A state of demand elasticity where the calculated value equals $1$, representing an equivalent percentage change in demand relative to price.

Perfectly Inelastic Demand

A state of demand elasticity where the calculated value equals $0$, resulting in no change in demand regardless of price changes.

Price Elasticity of Supply

The responsiveness of the supply of a good or service after a change in its market price, calculated mathematically as $PES = \frac{\%\Delta Qs}{\%\Delta P}$.

Perfectly Elastic Supply

A state of supply elasticity where quantity supplied is unlimited at a given price, but no quantity can be supplied at any other price.

Elastic Supply

A state of supply elasticity greater than $1$, where quantity supplied changes by a larger percentage than the price change.

Unitary Elastic Supply

A state of supply elasticity equal to $1$, where quantity supplied changes by the exact same percentage as the price change.

Inelastic Supply

A state of supply elasticity between $0$ and $1$, where quantity supplied changes by a smaller percentage than the price change.