Introduction to Microeconomics

Market

Place where goods and services are exchanged.

Supply

Producer's willingness to create and distribute goods.

Equilibrium Price

Price where supply equals demand in a market.

Supply Curve

Graph showing relationship between price and quantity supplied.

Price Elasticity of Demand

Responsiveness of demand to price changes.

Price Elasticity of Supply (PES)

Responsiveness of supply to price changes.

Market Failure

Inefficient allocation of resources in a market.

Free Market

Market with many buyers and sellers, no intervention.

Price Takers

Firms unable to influence market prices.

Homogeneous Products

Identical products with no brand differentiation.

Consumer Sovereignty

Consumers dictate production through their purchasing choices.

Price Mechanism

Allocation of resources based on price changes.

Monopoly

Market structure with one firm dominating over 25%.

Oligopoly

Market dominated by 4-5 large interdependent firms.

Monopolistic Competition

Many firms with differentiated products and low entry barriers.

Law of Demand

Price decrease leads to increased quantity demanded.

Income Effect

Price change affects consumer purchasing power.

Substitution Effect

Consumers switch to cheaper alternatives when prices rise.

Normal Goods

Demand increases as consumer income rises.

Inferior Goods

Demand decreases as consumer income rises.

Barriers to Entry

Obstacles preventing new firms from entering a market.

Perfect Knowledge

All market participants have complete information.

Symmetry of Information

Equal access to information for buyers and sellers.

Competitive Market

Market structure with many firms competing.

Government Intervention

Actions taken by government affecting market outcomes.

Disposable Income

Income available for spending after taxes.

Substitutes

Goods that can replace each other in consumption.

Complements

Goods used together, affecting each other's demand.

Tastes/preferences

Consumer interests influenced by advertising and trends.

Demand schedule

Table showing quantity demanded at various prices.

Monopolistically competitive

Market structure with many firms selling differentiated products.

Market

Any arrangement where buyers and sellers interact.

Monopoly

Market structure with a single seller dominating supply.

Normal good

Demand increases as consumer income rises.

Market surplus

Excess supply when quantity supplied exceeds quantity demanded.

Equilibrium

Point where supply and demand curves intersect.

Competitive market

Market with many buyers and sellers, free entry.

Law of demand

Price increase leads to lower quantity demanded.

Oligopoly

Market structure with few firms dominating supply.

Equilibrium price

Price at which quantity supplied equals quantity demanded.

Quantity supplied

Amount of goods producers are willing to sell.

Law of supply

Price increase leads to higher quantity supplied.

Inferior good

Demand increases as consumer income decreases.

Change in production costs

Affects supply by altering production expenses.

Productivity

Efficiency of production affecting supply levels.

Technology

Advancements that enhance production efficiency.

Seasonality

Variations in supply based on seasonal changes.

Climate conditions

Environmental factors impacting supply, causing shocks.

Number of suppliers

More suppliers can increase market supply.

Movement on supply curve

Change in price causes movement, not a shift.

Shift in supply curve

Non-price factors cause the entire curve to shift.

Demand curve shift

Change in demand due to non-price factors.

Price Elasticity

Responsiveness of demand to price changes.

Price Elasticity of Demand (PED)

Measures demand response to price increases.

Inelastic Demand

Small response in quantity demanded to price change.

Elastic Demand

Large response in quantity demanded to price change.

PED Formula

PED = % change in Qd / change in P.

Determinants of PED

Factors influencing demand's price responsiveness.

Degree of Necessity

Importance of product affects its elasticity.

Substitutes

Availability of alternatives impacts demand elasticity.

Income Proportion

Percentage of income spent influences demand elasticity.

Decision Time

Time available affects responsiveness to price changes.

Price Elasticity of Supply (PES)

Measures supply response to price changes.

Law of Supply

Higher prices lead to higher quantity supplied.

PES Formula

PES = % change in Qs / change in P.

Elastic Supply

Supply quickly responds to price changes.

Inelastic Supply

Supply slowly responds to price changes.

Factors Affecting PES

Elements influencing supply's price responsiveness.

Spare Capacity

Available production capacity affects supply elasticity.

Durability of Goods

Durable goods have more elastic supply.

Production Period

Time to produce affects supply elasticity.

Market Failure

Inefficient resource allocation in competitive markets.

Self-Interest

Consumers and producers act for mutual benefit.

Resource Misallocation

Too much or too little production occurs.

Luxury Goods

Non-essential items with elastic demand.

Necessity Goods

Essential items with inelastic demand.

Fast Fashion

Industry with elastic supply due to quick response.

Construction Industry

Example of inelastic supply due to long production.

Holidays Abroad

Example of price elastic demand due to substitutes.

Buying a House

Example of inelastic demand due to necessity.

Market Failure

Inefficient resource allocation by the market mechanism.

Allocative Inefficiency

Production deviates from socially desirable levels.

Rivalrous Goods

Consumption by one reduces availability for others.

Excludable Goods

Access can be restricted by charging a price.

Public Goods

Non-rivalrous and non-excludable benefits to society.

Free Rider Problem

Benefiting from goods without paying for them.

Common Access Resources

Non-owned resources exploited without regulation.

Tragedy of the Commons

Overuse of shared resources leads to depletion.

Externality

Spillover effects on third parties from market activities.

Negative Externality of Production

Costs imposed on others from production activities.

Negative Externality of Consumption

Costs imposed on others from consumption activities.

Positive Externality of Production

Benefits to others from production activities.

Positive Externality of Consumption

Benefits to others from consumption activities.

Asymmetric Information

Unequal knowledge between buyer and seller.

Adverse Selection

Informed party exploits uninformed party's lack of knowledge.

Moral Hazard

Risk-taking without facing full consequences.

Government Intervention

Actions taken by authorities affecting market outcomes.

Inter-temporal Efficiency

Optimal resource allocation over different time periods.

Dynamic Efficiency

Long-term innovation and resource allocation effectiveness.

Productive Efficiency

Production at the lowest cost possible.