Microeconomics Review

A set of flashcards covering key vocabulary and concepts from microeconomics, including definitions and explanations based on the lecture notes.

Microeconomics

The study of the economic choices made by individuals and firms and how these choices create markets.

Production Possibilities Frontier (PPF)

A graphical representation showing the possible combinations of two goods that an economy can produce with a fixed amount of resources.

Opportunity Cost

The cost of producing a good measured by the alternative uses that are foregone producing it.

Inefficiency

A situation where resources are not being used to their full potential, resulting in less output than possible.

Market Equilibrium

The condition where the quantity demanded of a good is equal to the quantity supplied, determining the market price.

Elastic Demand

Demand is elastic when buyers are very responsive to price changes.

Inelastic Demand

buyers are not very responsive to price changes.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good for another while maintaining the same level of utility.

Perfect Substitutes

Two goods are perfect substitutes when the marginal rate of substitution is constant.

Utility Maximization

The process of choosing goods to maximize satisfaction, based on income and the prices of goods.

Budget Constraint

A mathematical representation of the combinations of goods that a consumer can afford given their income and the prices of goods.

Diminishing Returns

A principle stating that adding more of one input while holding others constant will eventually yield smaller increases in output.

Returns to Scale

The rate at which output increases in response to a proportional increase in all inputs.

Average Cost

Total cost divided by the number of units produced.

Marginal Cost

The additional cost incurred from producing one more unit of output.

Fixed Costs

Costs that do not change with the level of output.

Variable Costs

Costs that vary with the level of output.

Profit Maximization

The process of setting output levels to generate the maximum possible profit.

Isoquant

A curve that shows all the combinations of inputs that produce the same level of output.

Marginal Product

The additional output produced by adding one more unit of an input, holding all other inputs constant.

Consumer Theory

A field of economics that studies how individuals make decisions to allocate their resources.