Microeconomics Course Summary Flashcards

Comprehensive vocabulary flashcards covering the key principles of microeconomics, including market forces, equilibrium, and elasticity based on the HES-SO Valais-Wallis course materials.

Scarcity

The condition where society has limited resources and thus cannot produce all the goods and services people wish to have.

Economics

The study of how society manages its scarce resources, including how people make decisions, interact, and how the economy as a whole works.

Circular Flow Diagram

A visual model of the economy showing how currency and physical factors/goods flow through markets between households and firms.

Efficiency

The property of society getting the maximum benefits from its scarce resources, often referred to as the size of the economic pie.

Equity

The property of distributing economic prosperity fairly among the members of society, often referred to as how the economic pie is divided.

Opportunity Cost

What you must give up to obtain an item; it represents the loss of potential gain from the next-best alternative choice.

Marginal Changes

Small, incremental adjustments to an existing plan of action.

Marginal Decision Rule

A rational decision-maker takes an action if and only if the Marginal Benefit (MB) exceeds the Marginal Cost (MC), or $MB > MC$.

Market Economy

An economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets.

Invisible Hand

The concept introduced by Adam Smith suggesting that households and firms interacting in markets act as if guided by an unseen force toward desirable market outcomes.

Market Failure

A situation in which a market left on its own fails to allocate resources efficiently.

Externality

The uncompensated impact of one person's actions on the well-being of a bystander, such as pollution.

Market Power

The ability of a single economic actor (or small group) to unduly influence market prices, such as a monopoly.

Standard of Living

A measure of economic well-being, typically measured by real (inflation-adjusted) income per head of population, or GDP per capita.

Productivity

The amount of goods and services produced from each hour of a worker's time.

Inflation

An increase in the overall level of prices in the economy, primarily caused by excessive growth in the quantity of money.

Competitive Market

A market with so many buyers and sellers that each has a negligible impact on the market price, often characterized as price takers.

Law of Demand

The principle that, ceteris paribus, when the price of a good rises, the quantity demanded falls ($P \uparrow \Rightarrow Qd \downarrow$).

Normal Good

A good for which an increase in income leads to an increase in demand (Income $\uparrow \Rightarrow$ Demand shifts RIGHT).

Inferior Good

A good for which an increase in income leads to a decrease in demand (Income $\uparrow \Rightarrow$ Demand shifts LEFT).

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.

Complements

Two goods for which an increase in the price of one leads to a decrease in the demand for the other.

Law of Supply

The principle that, ceteris paribus, when the price of a good rises, the quantity supplied also rises ($P \uparrow \Rightarrow Qs \uparrow$).

Equilibrium Price ($Pe$)

The price level where the quantity supplied equals the quantity demanded ($Qd = Qs$).

Surplus

A situation of excess supply where the market price is above the equilibrium price ($P > Pe$), and quantity supplied exceeds quantity demanded ($Qs > Qd$).

Shortage

A situation of excess demand where the market price is below the equilibrium price ($P < Pe$), and quantity demanded exceeds quantity supplied ($Qd > Qs$).

Price Elasticity of Demand ($Ed$)

A measure of how much the quantity demanded of a good responds to a change in the price of that good, calculated as $\% \Delta Qd / \% \Delta P$.

Midpoint Method

A formula used to calculate elasticity that eliminates directional bias: $\text{Emid} = \left| \frac{ (Q_2 - Q_1) / ((Q_1 + Q_2) / 2) }{ (P_2 - P_1) / ((P_1 + P_2) / 2) } \right|$.

Perfectly Inelastic Demand

A situation where elasticity equals 0 ($E = 0$), the demand curve is vertical, and quantity demanded does not change regardless of price.

Total Revenue (TR)

The amount paid by buyers and received by sellers of a good, calculated as the price of the good times the quantity sold ($TR = P \times Q$).

Income Elasticity of Demand ($EI$)

Measures how the quantity demanded changes as consumer income changes, calculated as $\% \Delta Q / \% \Delta I$.

Cross-Price Elasticity of Demand ($E_{xy}$)

Measures how the quantity demanded of one good (X) responds to a change in the price of another good (Y), calculated as $\% \Delta Q_X / \% \Delta P_Y$.

Price Elasticity of Supply ($E_s$)

Measures how much the quantity supplied of a good responds to a change in the price of that good, calculated as $\% \Delta Qs / \% \Delta P$.