Economics Review

Flashcards for economics vocabulary.

Market Efficiency

The degree to which prices in a market reflect all available information and resources are allocated optimally.

Equilibrium

The state in a market where the quantity demanded equals the quantity supplied, resulting in a stable price and quantity.

Demand

The willingness and ability of buyers to purchase a product at various price levels.

Supply

The willingness and ability of sellers to offer a product at various price levels.

Law of Demand

The inverse relationship between price and quantity demanded, stating that as the price of a product increases, the quantity demanded decreases, ceteris paribus.

Law of Supply

The direct relationship between price and quantity supplied, stating that as the price of a product increases, the quantity supplied increases, ceteris paribus.

Surplus

A situation in the market where the quantity supplied exceeds the quantity demanded, resulting in downward pressure on prices.

Shortage

A situation in the market where the quantity demanded exceeds the quantity supplied, resulting in upward pressure on prices.

Price Ceiling

A maximum price set by the government below the market equilibrium price, often leading to shortages.

Price Floor

A minimum price set by the government above the market equilibrium price, often leading to surpluses.

Externalities

Costs or benefits associated with the production or consumption of a good that are not reflected in the market price.

Perfect Competition

A market structure characterized by a large number of buyers and sellers, homogeneous products, perfect information, and ease of entry and exit.

Market Failure

A situation where the market fails to allocate resources efficiently, leading to an inefficient outcome.

Allocative Efficiency

The efficient allocation of resources where resources are distributed in a way that maximizes societal welfare.

Price Elasticity of Demand

A measure of the responsiveness of quantity demanded to changes in price.

Price Elasticity of Supply

A measure of the responsiveness of quantity supplied to changes in price.

Marginal Benefit

The additional benefit gained from consuming one more unit of a good or service.

Marginal Cost

The additional cost incurred from producing one more unit of a good or service.

Disequilibrium

A state in a market where the quantity demanded does not equal the quantity supplied, resulting in an imbalance and potential price adjustments.

Market Power

The ability of a firm or a group of firms to influence the price and output levels in a market.

Price Discrimination

The practice of charging different prices to different customers for the same product or service.

Monopoly

A market structure characterized by a single seller dominating the market and having significant control over prices.

Oligopoly

A market structure characterized by a few large firms that dominate the market and may exhibit interdependence in decision-making.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium quantity is not maximized due to market inefficiency or distortions.