demand
a relation showing the quantities of a good that consumers are willing and able to buy per period at various prices, other things constant
law of demand
the quantity of a good demanded per period relates inversely to its price, other things constant
marginal utility
the change in total utility resulting from one-unit change in consumption of a good
law of diminishing marginal utility
the more of a good an individual consumes per period, other things constant, the smaller the marginal utility of each additional unit consumed
demand curve
a curve or line showing the quantities of a particular good demanded at various prices during a given time period, other things constant
quantity demanded
the amount demanded at a particular price
individual demand
the demand of an individual consumer
market demand
the sum of the individual demands of all consumers in the market
elasticity of demand
measures how responsive quantity demanded is to a price change; the percent change in quantity demanded divided by the percent change in price
total revenue
price multiplied by the quantity demanded at that price
normal good
good for which demand increases as money income increases
inferior good
good for which demand decreases as money income increases
tastes
a consumer’s likes and dislikes
movement along a demand curve
change in quantity demanded resulting from a change in the price of the good, other things constant
shift of a demand curve
increase or decrease in demand resulting from a change in one of the determinants of demand other than the price of the good
profit
total revenue - total cost
supply
a relation showing the quantities of a good producers are willing and able to sell at various prices during a given period, all other things constant
law of supply
the quantity of a good supplied during a given time period is usually directly related to its price, other things constant
supply curve
a curve, or line, showing the quantities of a particular good supplied at various prices during a given time period, other things constant
elasticity of supply
a measure of the responsiveness of quantity supplied to a price change; the percent change in quantity divided by the percent change in price
movement along a supply curve
change in quantity supplied resulting from a change in the price of the good, other things constant
shift of a supply curve
increase or decrease in supply resulting from a change in one of the determinants of supply other than the price of the good
short run
a period during which at lest one of a firm’s resources is fixed
long run
a period during which all of a firm’s resources can be varied
total product
the total output of the firm per period
marginal product
the change in total product resulting from a one-unit change in a particular resource, all other things constant
law of diminishing returns
as more of a variable resource is added to a given amount of other resources, marginal product eventually declines and could become negative
fixed cost
any production cost that is independent of the firm’s output
variable cost
any production cost that changes as output changes
total cost
the sum of fixed cost and variable cost
marginal cost
the change in total cost resulting from a one-unit change in output; the change in total cost divided by the change in output
marginal revenue
the change in total revenue from selling another unit of the good
economies of scale
forces that reduce a firm’s average cost as the firm’s size, or scale, increases in the long run
long-run average cost curve
a curve that indicates the lowest average cost of production at each rate of output when the firm’s size is allowed to vary
diseconomies of scale
when the firm’s long-run average cost increases as production increases
market equilibrium
when the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell
surplus
at a given price, the amount by which quantity supplied exceeds quantity demanded; usually forces the price down
shortage
at a given price, the amount by which quantity demanded exceeds quantity supplied; usually forces the price up
transaction costs
the costs of time and information needed to carry out market exchange
increase in demand
consumers are willing and able to buy more of the product at each price
decrease in demand
consumers are willing and able to buy less of the produt at each price
increase in supply
producers are willing and able to sell more of the product at each price
decrease in supply
producers are willing and able to supply less of the product at each price
productive efficiency
occurs when a firm produces at the lowest possible cost per unit
allocative efficiency
occurs when a firm produces the output most values by consumers
disequilibrium
a mismatch between quantity demanded and quantity supplied as the market seeks equilibrium; usually temporary, except when the government intervenes to set the price
price floor
a minimum legal price below which a product cannot be sold
price ceiling
a maximum legal price above which a product cannot be sold
consumer surplus
the difference between the most that consumers are willing and able to pay for a given quantity of a good and what they actually pay
behavioral economics
an approach that borrows insights from psychology to help explain economic choices
bounded rationality
there are limits to the amount of information people can comprehend and act on
limited willpower
limited self-discipline in following through with decisions that are in one’s self-interest, especially in one’s long-term interest
neuroeconomics
the mapping of brain activity while subjects make economic choices to develop better models of economic decision making
market structure
important features of a market, including the number of buyers and sellers, product uniformity across sellers, ease of entering the market, as well as forms of competition
perfect competition
a market structure with many fully informed buyers and sellers of an identical product and ease of entry
commodity
a product that is identical across sellers, such as a bushel of wheat
monopoly
the sole supplier of a product with no close substitutes
market power
the ability of a firm to raise its price without losing all sales to rivals
barriers to entry
restrictions on the entry of new firms into an industry
monopolistic competition
a market structure with low entry barriers and many firms selling products differentiated enough that each firm’s demand curve slopes downward
oligarchy
a market structure with a small number of firms whose behavior is independent
cartel
a group of firms that agree to act as a single monopoly to increase the market price and maximize the group’s profit
antitrust activity
government efforts aimed at preventing monopoly and promoting competition in markets where competition is desirable
merger
the joining of two or more firms to form a single firm
deregulation
a reduction in government control over prices and firm entry in previously regulated markets, such as airlines and trucking