Midterm 2 Principles of Microeconomics Review

Flashcards created from lecture notes for Principles of Microeconomics covering key concepts from demand, supply, and equilibrium.

Market

A system or an area where buyers and sellers interact to exchange goods and services.

Law of Demand

As price decreases, the quantity demanded increases, and vice versa, ceteris paribus.

Demand Schedule

A table that shows the quantity demanded at different price levels.

Demand Curve

A graphical representation of the relationship between price and quantity demanded.

Quantity Demanded (Qd)

The total amount of a good or service demanded at a specific price.

Demand (D)

The relationship between price and quantity demanded across different price levels.

Individual Demand

The demand for a good or service from a single buyer.

Market Demand

The total demand for a good or service in a market, summing individual demands.

Law of Supply

As price increases, the quantity supplied increases, and vice versa, ceteris paribus.

Supply Schedule

A table that shows the quantity supplied at different price levels.

Supply Curve

A graphical representation of the relationship between price and quantity supplied.

Quantity Supplied (Qs)

The total amount of a good or service supplied at a specific price.

Supply (S)

The relationship between price and quantity supplied across different price levels.

Individual Supply

The supply of a good or service from a single seller.

Market Supply

The total supply of a good or service in a market, summing individual supplies.

Market Equilibrium

A state where the quantity demanded equals the quantity supplied.

Market Disequilibrium

A situation in which the quantity demanded does not equal the quantity supplied.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in price.

Cross Price Elasticity of Demand

Measures the responsiveness of the quantity demanded of one good to a change in the price of another good.

Income Elasticity of Demand

Measures how the quantity demanded of a good changes as consumer income changes.

Seller’s Problem

The difficulty firms face in determining the optimal quantity of output to produce.

Law of Diminishing Returns

As more units of a variable resource are added to a fixed resource, the additional output will eventually decrease.

Optimum Quantity

The level of output where the firm maximizes its profits or minimizes losses.

Producer Surplus

The difference between the price producers are willing to accept and the market price.

Competitive Equilibrium

A state in which market supply and demand balance each other and prices become stable.

Scarce Resources

Resources that are limited in supply and cannot meet all human wants.

Price Control

Government-mandated minimum or maximum prices set for a commodity.

Price Ceiling

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

Price Floor

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

Social Surplus

The total benefit to society from the production and consumption of goods and services.

Deadweight Loss

Loss of economic efficiency that occurs when equilibrium is not achieved.

Monopoly

A market structure in which a single seller dominates the market.

Barriers to Entry

Obstacles that make it difficult for new firms to enter a market.

Buyer Behavior

The decision processes and actions of consumers in selecting and purchasing products.

Seller Behavior

The practices and strategies employed by producers in the market.

Changes in Market Equilibrium

Adjustments in the market due to shifts in demand or supply.

Profit/Loss Area

The region on a graph that indicates whether a firm is making a profit or incurring a loss.

Firm Entries

The process of new firms entering a market.

Firm Exits

The process of firms leaving or exiting a market.

Demand Elasticity

The degree to which quantity demanded responds to changes in price.

Supply Elasticity

The responsiveness of the quantity supplied to a change in price.

Market Demand Curve

The summation of individual demand curves for a market.

Market Supply Curve

The summation of individual supply curves for a market.

Individual Demand Curve

The demand curve representing a single consumer's demand behavior.

Individual Supply Curve

The supply curve representing a single producer's supply behavior.

Equilibrium Price

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

Equilibrium Quantity

The quantity at which the market is in equilibrium.

Inferior Goods

Goods for which demand increases as consumer income decreases.

Normal Goods

Goods for which demand increases as consumer income increases.

Substitutes

Goods that can replace each other; an increase in the price of one leads to an increase in the demand for the other.

Complements

Goods that are consumed together; an increase in the price of one leads to a decrease in the demand for the other.

Utility

A measure of satisfaction or pleasure derived from consuming goods or services.

Marginal Utility

The additional satisfaction gained from consuming an additional unit of a good.

Total Revenue

The total amount of money a firm receives from sales of its goods.

Marginal Revenue

The additional revenue gained from selling one more unit of a good.

Economic Profit

Total revenue minus total cost, including both explicit and implicit costs.

Accounting Profit

Total revenue minus explicit costs; does not include implicit costs.

Fixed Costs

Costs that do not change with the level of output produced.

Variable Costs

Costs that vary directly with the level of output produced.

Total Costs

The sum of fixed costs and variable costs.

Average Cost

Total cost divided by the quantity of output produced.

Marginal Cost

The cost of producing one additional unit of output.

Perfect Competition

A market structure characterized by many buyers and sellers, identical products, and free market entry and exit.

Invisible Hand

The concept that individuals seeking their economic self-interest can lead to positive societal outcomes.

Producer Price Index

A measure of the average change over time in the selling prices received by domestic producers.

Consumer Price Index

A measure of the average change over time in the prices paid by consumers for goods and services.

Equilibrium Quantity Supplied

The quantity supplied at the equilibrium price.

Equilibrium Quantity Demanded

The quantity demanded at the equilibrium price.