ECON 110A

When to use the supply curve?

When you want to understand producer behaviour.

When to use the demand curve?

When you want to understand consumer behaviour.

Demand curve

Focuses on consumers and what affects how much they want to buy.

Supply curve

Focuses on producers and what affects how much they want to produce and sell.

Opportunity Cost

Represents potential benefits missed when choosing one alternative over another.

Income elasticity of demand

Refers to the sensitivity of the quantity demanded for a certain good to a change in consumers' real income.

Price elasticity of demand

A measure of the responsiveness of quantity demanded to a change in price.

Elasticity

A numerical measure of the responsiveness of quantity demanded or supplied to one of the determinants.

Perfectly elastic demand

Demand is infinite; consumers will purchase at one price but none at a higher price.

Unit elastic demand

Demand equals 1; percentage change in quantity demanded equals percentage change in price.

Inelastic demand

Demand is less than 1; consumers are not very sensitive to price changes.

Market Efficiency

Occurs when the quantity produced and consumed maximizes total economic surplus, at equilibrium.

Marginal cost

The additional cost to produce an extra unit.

Marginal benefit

The value consumers place on an additional unit.

Binding price ceiling

A government-imposed maximum price set below equilibrium price, causing a shortage.

Tax incidence

Refers to how the tax burden is divided between consumers and producers.

DWL

Deadweight loss; the value of lost transactions benefiting buyers and sellers.

Consumer Surplus

The difference between marginal benefit and price.

Producer Surplus

The difference between price and marginal cost.

Equilibrium

Where supply meets demand at a certain price, the market is balanced.

Normal goods

Demand increases as income increases.

Inferior goods

Demand decreases as income increases.

Subsidy

Government payment to increase quantity demanded and supplied.

Externalities

A side effect of an activity that affects others not accounted for in decision-making.

Negative Externalities

Negative effects from activities like pollution that aren't paid for by the responsible party.

Positive Externalities

Benefits to others from actions like vaccinations that aren't compensated for.

Tragedy of the Commons

Overuse of common resources due to lack of ownership.

Market Structure

Refers to the competitive environment determining pricing and strategy.

Perfect Competition

Many sellers, identical products, no market power.

Monopoly

One seller, unique product, significant market power.

Profit Basics

Total Revenue = Total Cost + Profit, where Profit = Revenue - Cost.

Types of Costs

Explicit costs are actual payments, while implicit costs are opportunities lost.

Production Function

Shows how inputs turn into output.

Marginal Product

Extra output from adding one more input.

Diminishing Marginal Product

Adding more inputs eventually gives less extra output.

Barriers to entry

Obstacles making it difficult for new suppliers to enter a market.

Price Discrimination

Selling the same product at different prices to maximize revenue.

Nash Equilibrium

Where each player's choice is the best response to others' choices.

Socially Optimal Decision

Outcomes that are jointly better off when players cooperate.

First mover advantage

Gains from being the first to enter a market and forcing rivals to respond.

Sequential Games

Games where one can see a rival's action before making a choice.

Haggling

A form of price discrimination where prices are tailored to each customer.