Microeconomics

Microeconomics

The branch of economics dealing with individual economic agents and their decisions.

Scarcity

The fundamental economic problem where resources are limited but human wants are limitless.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Efficiency

Achieving the most output with the least amount of input, maximizing total benefit to society.

Utility

The satisfaction or pleasure derived from consuming goods and services.

Law of Demand

States that as the price of a good increases, the quantity demanded decreases.

Law of Supply

States that as the price of a good increases, the quantity supplied increases.

Equilibrium Price

The price where the quantity demanded equals the quantity supplied.

Elasticity

Measures how responsive the quantity demanded or supplied is to a change in price.

Price Elasticity of Demand (PED)

The responsiveness of quantity demanded of a good to a change in its price.

Elastic Demand

When a price increase leads to a significant decrease in quantity demanded (PED > 1).

Inelastic Demand

When price changes have little effect on quantity demanded (PED < 1).

Unitary Elasticity

When a price change results in an equal proportional change in quantity demanded (PED = 1).

Price Elasticity of Supply (PES)

The responsiveness of quantity supplied to changes in price.

Normal Goods

Goods for which demand increases as income increases (YED > 0).

Inferior Goods

Goods for which demand decreases as income increases (YED < 0).

Cross-Price Elasticity of Demand (XED)

The responsiveness of the demand for one good when the price of a related good changes.

Substitutes

If the price of one good rises, demand for another good increases (XED > 0).

Complements

If the price of one good rises, demand for another good decreases (XED < 0).

Consumer Surplus

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

Producer Surplus

The difference between the price at which producers are willing to sell a good and the price they actually receive.

Perfect Competition

A market structure where there are many buyers and sellers with identical products.

Monopoly

A market structure where there is only one seller controlling the supply of a product.

Oligopoly

A market structure dominated by a few large firms, which may engage in price and non-price competition.

Monopolistic Competition

A market structure with many firms producing slightly differentiated products that compete on price.

Fixed Costs

Costs that do not change with the level of output.

Variable Costs

Costs that change with the level of output.

Total Cost (TC)

The sum of fixed and variable costs of production.

Economies of Scale

When average costs fall as production increases, due to spreading fixed costs over more units.

Price Controls

Government-imposed limits on the prices charged for goods and services.

Positive Externalities

Benefits to others not directly involved in an economic transaction.

Negative Externalities

Costs imposed on third parties not involved in an economic transaction.