Microeconomics and Market Analysis Flashcards

Comprehensive vocabulary flashcards covering key definitions, theories, cost concepts, demand and supply, utility analysis, market structures, and distribution theories based on the lecture transcript.

Microeconomics

The branch of economics derived from the Greek word 'Mikros' (meaning small) that studies the economic behaviour of individual economic units, such as a single consumer, household, firm, or industry.

Price Theory

Another name for microeconomics, derived from its central concern with determining the prices of individual commodities and factors of production.

Slicing Method

An analytical method used in microeconomics that divides or 'slices' the economy into small individual units to study each part in detail.

Wealth Definition of Economics

The definition introduced by Adam Smith in 1776, viewing economics as a science of wealth concerning how wealth is produced and accumulated.

Welfare Definition of Economics

The definition introduced by Alfred Marshall in 1890, stating that economics studies mankind in the ordinary business of life and is concerned with material welfare.

Scarcity Definition of Economics

The definition formulated by Lionel Robbins in 1932, viewing economics as the study of human behaviour as a relationship between unlimited ends and scarce means with alternative uses.

Growth-oriented Definition of Economics

The modern definition formulated by Paul A. Samuelson in 1948, focusing on how society employs scarce resources 'over time' to produce and distribute goods 'now and in the future'.

Utility

The power or capacity of a commodity to satisfy a human want, characterized as a subjective, relative, and ethically neutral concept.

Total Utility (TU)

The sum total of satisfaction obtained from consuming all given units of a commodity, expressed as $TU = \Sigma MU$.

Marginal Utility (MU)

The additional satisfaction obtained from consuming one more unit of a commodity, calculated as $MU = TU_n - TU_{n-1}$.

Law of Diminishing Marginal Utility (DMU)

The economic principle stating that as a consumer consumes more units of a commodity, the marginal utility derived from each successive unit decreases, ceteris paribus.

Indifference Curve

A curve showing all combinations of two goods that provide the consumer with the exact same level of satisfaction, making the consumer indifferent among them.

Indifference Map

A set of indifference curves where each higher curve represents a higher level of consumer satisfaction.

Demand

The desire for a commodity backed by both the willingness and the ability (purchasing power) to pay for it at a given price and during a given time period.

Law of Demand

The principle stating that, ceteris paribus, there is an inverse relationship between the price of a commodity and its quantity demanded.

Expansion and Contraction of Demand

Movements along the same demand curve caused solely by a change in the good's own price, where a price fall causes expansion and a price rise causes contraction.

Increase and Decrease in Demand

Shifts of the entire demand curve caused by non-price factors, where a rightward shift represents an increase and a leftward shift represents a decrease.

Giffen Goods

Highly inferior goods whose demand increases when their price rises because the negative income effect outweighs the substitution effect.

Veblen Goods

Prestige or luxury goods whose demand rises with an increase in price because higher prices signal status and conspicuous consumption.

Supply

The quantity of a commodity that a producer is willing and able to offer for sale at a given price during a specified period of time.

Law of Supply

The principle stating that, ceteris paribus, there is a direct positive relationship between the price of a commodity and its quantity supplied.

Expansion and Contraction of Supply

Movements along the same supply curve caused by a change in the commodity's own price, where a price increase leads to expansion and a price decrease leads to contraction.

Increase and Decrease in Supply

Shifts of the whole supply curve caused by factors other than the good's own price, where a rightward shift is an increase and a leftward shift is a decrease.

Price Elasticity of Demand ($E_d$)

A measure of the degree of responsiveness of quantity demanded to a change in the price of the good, defined as percentage change in quantity demanded divided by percentage change in price.

Law of Equi-Marginal Utility

The condition for maximizing satisfaction across multiple goods where the marginal utility per unit of currency spent is equal for all goods, written as $\frac{MU_x}{P_x} = \frac{MU_y}{P_y}$.

Budget Line

A graphical line showing all combinations of two goods that a consumer can purchase given a fixed money income and prices of the two goods.

Substitution Effect

The change in consumption resulting from a relative price change of a good while holding consumer satisfaction or real income constant.

Income Effect

The change in consumption of a good resulting from a change in real purchasing power caused by a price change of that good.

Price Consumption Curve (PCC)

A curve connecting consumer equilibrium points resulting from changes in the price of a good, used to derive the demand curve.

Revealed Preference Theory

Samuelson's approach that derives consumer demand theory from direct observations of actual consumer choices in the market rather than measuring or ranking utility.

Price Ceiling

A legal maximum price fixed by the government below the market equilibrium price, resulting in a market shortage ($Q_d > Q_s$).

Price Floor

A legal minimum price fixed by the government above the market equilibrium price, resulting in a market surplus ($Q_s > Q_d$).

Economic Cost

The sum of explicit accounting costs and implicit costs (including the opportunity cost of self-owned resources and normal profit).

Real Cost

A subjective concept introduced by Alfred Marshall referring to the mental efforts, toil, trouble, and personal sacrifices involved in economic production.

Social Cost

The total cost incurred by society as a whole from an economic activity, equal to private cost plus external costs (such as pollution).

Opportunity Cost

The value of the next-best alternative forgone or sacrificed when a choice is made among competing options.

Sunk Cost

A past cost that has already been incurred and cannot be recovered, which should be ignored in future economic decision-making.

Law of Variable Proportions

A short-run production theory stating that combining increasing units of one variable factor with fixed factors causes total product to rise at an increasing rate, then a diminishing rate, and eventually decline.

Returns to Scale

A long-run production concept describing how output responds when all input factors are increased simultaneously in the exact same proportion.

Long-Run Average Cost (LRAC) Curve

A U-shaped envelope curve tangent to all short-run average cost (SAC) curves, reflecting long-run economies and diseconomies of scale.

Perfect Competition

A market structure featuring a very large number of buyers and sellers, homogeneous products, free entry and exit, and price-taking firms ($AR = MR = \text{Price}$).

Monopoly

A market structure with a single seller of a product having no close substitutes and blocked market entry, making the firm a price-maker.

Monopolistic Competition

A market structure developed by E. H. Chamberlin featuring many sellers offering differentiated products with free entry and exit and heavy advertising costs.

Oligopoly

A market structure dominated by a few large, interdependent firms, often characterized by price rigidity and a kinked demand curve.

Monopsony

A market structure characterized by a single buyer facing many sellers, giving the buyer significant market power to influence purchase prices.

Differential Rent

David Ricardo's rent concept defining rent as the surplus output produced by more fertile or better situated land over marginal (least fertile) land.

Quasi-Rent

Alfred Marshall's concept defining the short-run surplus earned by man-made capital equipment whose supply is temporarily fixed, calculated as $\text{Total Revenue} - \text{Total Variable Cost}$.

Real Wages

Wages expressed in terms of the actual goods, services, and purchasing power that money wages can buy, reflecting the true standard of living.

Gross Interest

The total payment made by a borrower to a lender, comprising net interest plus rewards for risk-taking, inconvenience, and loan management.

Uncertainty-bearing Theory of Profit

Frank H. Knight's theory stating that economic profit is the reward paid to an entrepreneur for bearing uninsurable, non-calculable business uncertainties.

Innovation Theory of Profit

J. A. Schumpeter's theory holding that profit is the temporary residual reward earned by an entrepreneur for introducing new products, methods, or market innovations.