Microeconomics-diagram-handout

Abnormal Profit

Occurs when Ppm > Pcost, indicating all costs are covered and there are surplus profits.

Ad Valorem Tax

A tax based on the value of a transaction, such as a VAT or sales tax.

Allocative Efficiency

Achieved when community surplus is maximized at price P*.

Average Revenue (AR) and Marginal Revenue (MR)

Under perfect competition, AR and MR are equal and represented by the same line.

Average Fixed Costs

A fixed cost per unit that diminishes as output increases but never reaches zero.

Average Product

Displays productive efficiency at its highest point where it intersects the average variable cost curve.

Average Revenue in Imperfect Competition

The light blue curve, which is the same as the demand curve, slopes downward.

Average Revenue in Non-Collusive Oligopoly

The green curve is relatively elastic above Ppm and inelastic below Ppm.

Average Total Costs

Sum of average fixed costs and average variable costs, represented by the blue line.

Average Variable Costs

Initially decreases then increases due to diminishing marginal returns, approaching but never reaching average total cost.

Break-Even Profit

Occurs at Qpm where Ppm equals Pcost, indicating all costs are covered with no profit.

Change in Demand

A shift in demand often due to factors like a new marketing campaign.

Change in Quantity Demanded

A movement along the demand curve caused by a change in price.

Change in Quantity Supplied

Movement along the supply curve in response to a change in price.

Change in Supply

A shift in the supply curve often due to external factors such as technological improvements.

Community Surplus

A situation where both producers and consumers are satisfied with the market price up to quantity Q.

Complement

A good that is typically used together with another good.

Constant Returns to Scale (LR)

Occurs when further expansion at output level Q3 does not lower costs.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay, measured as additional utility.

Decreasing Returns to Scale (LR)

When output increases beyond Q3 results in rising costs.

Elastic Supply

The quantity supplied changes more than the price change, represented as Qs = -C + dP.

Equilibrium

Achieved when quantity supplied equals quantity demanded at price P*.

Increasing Returns to Scale (LR)

When output increases to Q3, resulting in lower average costs.

Inelastic Supply

The quantity supplied changes less than the price change, represented as Qs = +C + dP.