microeconomics

Microeconomics

The study of the economy at the small scale level, typically dealing with individual households and markets.

• Typically deals with individual households and markets 

  • Ex: how imports and exports affect one market

Macroeconomics

The study of the economy at the large scale level, encompassing the entire economy of a state, country, or even the world.

Scarcity

The condition in which wants are greater than the limited resources available to satisfy those wants.

Opportunity Cost

The value of the best alternative that you did not select; what you gave up or sacrificed when making a decision.

Rational Decision Making

The process where individuals attempt to maximize their well-being or happiness by making choices based on costs and benefits.

Marginal Cost

The additional cost associated with one or more units of an activity.

Marginal Benefit

The additional benefit associated with one or more units of an activity.

Economic Surplus

The sum of consumer and producer surplus; a measure of the total welfare, or wealth, that trade creates in a market.

Producer Surplus

The difference between the price producers receive for a good or service and the minimum price they are willing to accept.

Consumer Surplus

The difference between the maximum price consumers are willing to pay for a good or service and the price they actually pay.

Law of Demand

As the price of a good, service, or resource rises, the quantity demanded will decrease, and vice versa.

Normal Good

A good for which there is a direct relationship between demand and income; an increase in income leads to an increase in demand.

Inferior Good

A good for which there is an inverse relationship between demand and income; an increase in income decreases demand.

Demand Curve

A graphical representation of the relationship between the price of a good and the quantities consumers are willing to buy.

Supply Schedule

A tabular representation of the relationship between the price of a good and the quantities producers are willing to supply.

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded.

Shortage

A situation where the quantity demanded is greater than the quantity supplied at the current market price.

Surplus

A situation where the quantity supplied is greater than the quantity demanded at the current market price.

Price Ceiling

A maximum legal price at which a good or service can be sold.

Price Floor

A minimum legal price at which a good or service can be sold.

Market Failure

A situation in which a market fails to produce the efficient level of output that maximizes total surplus.

Private Good

A good that is both rival and excludable.

Public Good

A good that is both nonrival and nonexcludable.

Free-Rider Problem

The challenge that arises when individuals consume a good without paying for it, making it difficult to profitably provide the good.

Coase Theorem

If property rights are well-defined and transaction costs are low, resources will gravitate to their highest-valued use.