econ

Microeconomics

Focuses on individual decision making

Economic policy

Government actions affecting the economy, such as tariffs

Positive statement

Objective, empirical statement describing how the world is

Normative statement

Subjective statement based on values and beliefs about how the world should be

Sources of economic debates

Differing positive theories, normative views, and policy effect disagreements

Firms' economic role

Producing and selling goods and services

Households' economic role

Buying and consuming goods and services

Production possibility frontier (PPF)

Combinations of output an economy can produce given tech and resources

Gains from trade

Mutual benefits when individuals or countries trade goods

Absolute advantage

Comparing producers based on their productivity for a good

Comparative advantage

Comparing producers based on their opportunity cost

Opportunity cost

Value of the next-best alternative given up

Cost-benefit analysis

Action occurs only if perceived benefits exceed costs

Competitive market

Market with many buyers and sellers, each having negligible market power

Behavior constraints

Price, income, preferences, and social norms constraining choices

Perfectly competitive market

Market with homogeneous goods and many small buyers and sellers

Monopoly

Market structure with only one seller determining the price

Oligopoly

Market structure with a few competing sellers

Monopsony

Market structure with only one buyer determining the price

Monopolistic competition

Market structure with many sellers offering differentiated goods

Demand curve

Relationship between a good's price and quantity demanded

Quantity demanded

Amount consumers are willing and able to purchase at a given price

Market demand

Sum of all individual demands for a particular good or service

Law of demand

Quantity demanded falls when price rises, other things constant

Diminishing marginal returns

Each additional unit yields smaller increases in output or satisfaction

Normal good

Good for which demand increases as income rises

Inferior good

Good for which demand decreases as income rises

Substitute goods

Goods that can be used in place of one another

Complement goods

Goods used together in combination with one another

Supply curve

Relationship between a good's price and quantity supplied

Quantity supplied

Amount of a good that sellers are willing and able to sell at a given price

Market supply

Sum of the quantities supplied by all sellers in a market

Law of supply

Quantity supplied rises when the price rises, other things equal

Movement along supply curve

Change in quantity supplied resulting directly from a change in the good's price

Factors shifting supply curve

Changes in input prices, technology, expectations, and the number of sellers

Market equilibrium

Situation where market price reaches the level where quantity supplied equals quantity demanded

Equilibrium price

Price that balances quantity supplied and quantity demanded

Equilibrium quantity

Amount supplied and demanded at the equilibrium price

Surplus

Condition where quantity supplied is greater than quantity demanded

Shortage

Condition where quantity demanded is greater than quantity supplied

Competition among sellers

Market force driving prices down when supply exceeds demand

Competition among buyers

Market force driving prices up when demand exceeds supply

Elasticity

measures how buyers and sellers respond to changes in market conditions 

Demand is elastic

when absolute value of elasticity is greater than 1