Supply+Demand and Business+Competition

Complements & Substitutes

Complements are bought together (hot dogs and buns). Substitutes replace each other (Coke and Pepsi).

Consumer & Producer Surplus

Consumer surplus is getting a deal (paying less than you were willing to). Producer surplus is making extra profit (selling for more than the bare minimum you would have accepted).

Demand

How much stuff people want to buy.

Elasticity

How sensitive people are to price changes. If the price goes up and everyone immediately stops buying, it’s elastic. If the price goes up and people buy it anyway (like life-saving medicine), it’s inelastic.

Equilibrium

The sweet spot where the exact amount buyers want matches the exact amount sellers have.

Externalities

When a transaction affects a random bystander. Negative = a factory polluting your air. Positive = your neighbor planting a nice garden that raises your property value.

Price Ceiling & Price Floor

Ceiling = a legal max price (usually causes shortages). Floor = a legal minimum price (usually causes surpluses).

Shortage & Surplus

Shortage = not enough stuff. Surplus = too much stuff left over.

Supply

How much stuff businesses are willing to sell.

Antitrust Laws

Rules to stop monopolies and keep businesses competing fairly.

Barriers to Entry

Things that make it hard to start a new business (like needing billions of dollars to build an airplane factory).

Collusion / Price Fixing

When rival companies secretly agree to keep prices high so they all make more money. (This is highly illegal).

Corporation, Partnership, Sole Proprietorship

Sole = one owner. Partnership = two or more owners. Corporation = a giant legal company owned by shareholders.

Monopolistic Competition

Lots of businesses selling similar but slightly different things (like fast-food burger joints).

Monopoly

One giant company controls the entire market.

Oligopoly

A few giant companies control the market (like airlines or cell phone carriers).

Perfect Competition

Tons of small businesses selling the exact same thing (like farmers selling apples).

Price Discrimination

Charging different people different prices for the same exact thing (like student or senior citizen discounts).

Absolute Advantage

Being the absolute fastest or best at making something.

Diminishing Returns

The "too many cooks in the kitchen" rule. Eventually, adding more resources (like workers) stops being helpful and might even slow things down.

Economic vs. Accounting Profit

Accounting profit is just your standard "money in minus money out." Economic profit also subtracts your opportunity cost (what you could have made doing something else instead)

Implicit vs. Explicit Costs

Explicit costs are actual bills you pay (like rent). Implicit costs are the invisible costs of what you gave up to do it (like the salary you gave up to start a business).

Marginal Cost / Benefit

The cost or benefit of doing just one more of something (e.g., eating one more slice of pizza).

Normative vs. Positive Economics

Positive = facts you can prove ("Taxes are 10%"). Normative = opinions ("Taxes should be 10%")