Microeconomics Vocabulary Flashcards

Flashcards containing key vocabulary terms from microeconomics, essential for understanding consumer choice, demand, and related concepts.

Budget Line

A graphical representation of all possible combinations of two goods that a consumer can purchase given their income and the prices of the goods.

Marginal Utility

The additional satisfaction or benefit that a consumer derives from consuming one more unit of a good or service.

Sunk Cost

A cost that has already been incurred and cannot be recovered, often leading to poor decision-making in economic contexts.

Opportunity Cost

The value of the next best alternative that is foregone when a choice is made.

Perfect Competition

A market structure characterized by a large number of small firms, homogeneous products, and easy entry and exit from the market.

Monopoly

A market structure where a single seller dominates the market with no close substitutes for the product.

Diminishing Marginal Returns

The decrease in the additional output generated when an additional unit of input is added, holding other inputs constant.

Economic Profit

Total revenue minus total costs, including both explicit and implicit costs.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Framing Bias

A cognitive bias that occurs when people react differently depending on how information is presented, rather than on the information itself.

Price Discrimination

The practice of charging different prices to different consumers for the same good or service based on their willingness to pay.

Long-Run Economies of Scale

Cost advantages that firms obtain due to scale of operation, with cost per unit of output generally declining with increasing scale as fixed costs are spread out over more units.

Herfindahl–Hirschman Index (HHI)

A measure of market concentration calculated by squaring the market share of each firm and summing the results, used to assess market competitiveness.

Producer Surplus

The difference between what producers are willing to accept for a good or service versus the actual price they receive.

Normal Profit

The minimum level of profit needed for a company to remain competitive in the market, effectively covering opportunity costs.