microecon

Economics

The study of how we handle scarcity and exchange goods/services.

Scarcity

Nothing is unlimited—money, resources, labor, or time—except our wants.

Positive Economics

Objective economic analysis.

Normative Economics

Non-objective analysis that expresses value judgments.

Trade-offs

What you give up when making a decision, created by scarcity.

Opportunity Cost

The next best thing that you gave up in making a decision.

Ceteris Paribus

All else being equal.

Economic System

The relationship between people, the government, businesses, and the rest of the world.

Traditional Economy

An economic system based on barter and agriculture.

Command Economy

An economic system where the government controls production and distribution.

Market Economy

An economic system where firms decide production based on consumer choices.

Microeconomics

The study of smaller scales—cities, individual firms, or industries.

Consumer Goods

Products used by customers for personal use.

Capital Goods

Goods used to produce other goods.

Utility

Total satisfaction from consuming a good or service.

Total Utility

Aggregate satisfaction from all consumption.

Marginal Utility

Additional satisfaction from one more unit consumed.

Law of Diminishing Marginal Utility

Satisfaction decreases with each additional unit consumed.

Budget Constraint

Limitations due to limited resources.

Utility Maximizing Rule

Spend money so each dollar gives the same marginal utility.

Macroeconomics

The study of larger scales—nation-wide, international, and corporate economies.

Economic Growth

Increasing ability to satisfy people's wants.

Full Employment

All available resources are used.

Full Production

All resources used to maximize fulfillment of unlimited wants.

Demand

Consumer willingness to purchase at various prices.

Law of Demand

Lower price = more demand; higher price = less demand.

Elastic Demand

Large changes in demand for small price changes.

Inelastic Demand

Little change in demand for price changes.

Factors of Demand

Price, income, substitutes, preferences, expectations, number of consumers.

Change in Demand

Shift in the entire demand curve.

Quantity Demanded

Specific point on the demand curve.

Supply

Producer willingness to sell at various prices.

Law of Supply

Higher price = more supply; lower price = less supply.

Factors of Supply

Input prices, technology, expectations, number of producers.

Change in Supply

Shift in the entire supply curve.

Quantity Supplied

Specific point on the supply curve.

Equilibrium

Where supply and demand meet.

Price Ceiling

Maximum price enforced by government.

Price Floor

Minimum price enforced by government.

Factors of Production

Land, labor, capital, and entrepreneurship.

Land

Natural resources used in production (e.g., oil, grass).

Labor

Physical work involved in production.

Capital

Money and resources needed to produce goods.

Entrepreneurship

Innovation and knowledge required to produce.

Fixed Costs

Costs that do not change with the level of output.

Variable Costs

Costs that vary with output.

Total Costs

Sum of fixed and variable costs.

Marginal Cost (MC)

Additional cost from producing one more unit.

Economies of Scale

Cost advantages from business expansion.

Diseconomies of Scale

Cost disadvantages from growing too large.

Law of Diminishing Marginal Returns

Additional input yields progressively smaller returns.

Pure Competition

Many firms with identical products; price set by the market.

Pure Monopoly

One firm that dominates and controls prices.

Monopolistic Competition

Many firms with differentiated products.

Oligopoly

Few firms that can have homogeneous or differentiated products.

Imperfect Competition

Market structures including monopolies and oligopolies.

Natural Monopoly

A monopoly that occurs naturally, like utilities.

Progressive Tax

Higher income means higher percentage paid in taxes.

Regressive Tax

Higher income means lower percentage paid in taxes.

Proportional Tax

Everyone pays the same percentage of their income.

Lorenz Curve

Graph showing income inequality.

Poverty Line

Income level below which a family is considered in poverty.

Negative Income Tax

Subsidies for those below the poverty line.

Externalities

Effects on third parties not directly involved in a transaction.

Negative Externality

Harmful effects on third parties (e.g., pollution).

Positive Externality

Beneficial effects on third parties (e.g., education).

Pigouvian Taxes

Taxes on firms that cause negative externalities.

Public Goods

Goods that are non-excludable and non-rival in consumption.

Private Goods

Goods that are excludable and rival in consumption.

Game Theory

Mathematical method for decision-making in strategic situations.

Prisoner’s Dilemma

Scenario showing strategic decision-making between competitors.

Nash Equilibrium

Situation where no party benefits by changing their strategy unilaterally.

Black Market

Market operating outside government regulation.

Pigouvian Subsidy

Incentive for firms creating positive externalities.

Tradable Emissions Permits

Permits given to regulate pollution and can be exchanged.

MR = MC Rule

Firms maximize profit where marginal revenue equals marginal cost.

Utility Maximization

Equalize marginal utility per dollar spent.

Marginal Productivity Theory

Income distributed based on societal contribution.