Lecture Notes: Market Equilibrium, PPF, and the Invisible Hand

Vocabulary flashcards covering key concepts from the lecture notes on demand and supply, PPF, opportunity cost, equilibrium, the invisible hand, and related economic ideas.

Demand curve (buy curve)

A graph showing how much of a good buyers are willing to purchase at each price; higher prices typically reduce quantity demanded.

Supply curve

A graph showing how much of a good producers are willing to sell at each price; higher prices typically increase quantity supplied.

Production Possibilities Frontier (PPF)

A curve representing the maximum feasible combinations of two goods that an economy can produce with current resources and technology.

Opportunity cost

The value of the next best alternative forgone when producing or consuming a good; the cost of resources in terms of sacrificed alternatives.

Market equilibrium

The point where the supply and demand curves intersect, yielding the equilibrium price and quantities (qa, qb).

Invisible hand

The idea that individuals pursuing their own self-interest in a free market coordinate production and allocation toward an efficient outcome.

Allocative efficiency

A state in which production is distributed to maximize societal welfare, typically where marginal benefit equals marginal cost.

Marginal value / value to consumers

The value or price buyers place on an additional unit of a good, reflecting society’s willingness to pay for more of that good.

Resource costs

The costs of the inputs (labor, capital, materials) used to produce goods; the supply curve reflects these costs.

Markets for goods A and B

Separate markets where buyers and sellers trade two different goods, with prices determined by supply and demand in each market.

Capitalism (market economy)

An economic system where markets coordinate production through voluntary exchange, private property, and competition.

Command economy / dictator alternative

An economic system in which a central authority decides what to produce and how to allocate resources, in contrast to a market-based system.