ECON 1002: From Marginal Choice to Markets

Vocabulary flashcards covering individual and market demand, individual and market supply, equilibrium, market adjustments, surplus, and core economic principles from the lecture.

Marginal benefit

The value of the next additional unit of a good to a buyer, representing the maximum willingness to pay for that unit.

Law of diminishing marginal utility

The economic principle stating that as a consumer purchases additional units of a good, each successive unit provides less extra satisfaction than the previous unit.

Horizontal interpretation of demand

Reading a demand curve by starting at a given price $P$ to determine the total quantity demanded $Q$ by buyers.

Vertical interpretation of demand

Reading a demand curve by starting at a given quantity $Q$ to determine the maximum price $P$ the marginal consumer is willing to pay.

Market demand

The horizontal sum of all individual buyers' quantities demanded at each given price level.

Participation margin

The entry of additional buyers into a market as price decreases, which contributes to the downward slope of the market demand curve.

Low-Hanging Fruit Principle

The principle explaining why marginal cost usually rises as production expands, as producers utilize their easiest or least costly resources first.

Seller's reservation price

The lowest price a seller is willing to accept for a unit, which equals the marginal opportunity cost of producing that unit.

Market equilibrium

A market state where the supply and demand curves intersect, such that quantity demanded equals quantity supplied and there is no pressure for price to change.

Shortage

An excess demand condition occurring when the market price is below equilibrium, causing quantity demanded to exceed quantity supplied.

Surplus

An excess supply condition occurring when the market price is above equilibrium, causing quantity supplied to exceed quantity demanded.

Consumer surplus

The net benefit to buyers, calculated as a buyer's maximum willingness to pay (reservation price) minus the actual price paid across all units purchased.

Producer surplus

The net benefit to sellers, calculated as the market price received minus the seller's marginal opportunity cost across all units sold.

Economic surplus

The total net gain from trade in a market, calculated as the sum of consumer surplus and producer surplus.

Incentive Principle

The principle stating that an action is more likely to be taken if its benefits rise, and less likely if its costs rise.

Invisible Hand Theory

Adam Smith's concept from his $1776$ treatise The Wealth of Nations stating that self-interested business owners pursuing private gain naturally promote social well-being.

Cash on the table

Unexploited economic surplus or unmade gains from trade that remain when a market is not operating efficiently.