economics

Scarcity

Human wants exceed available resources (time, labour, land, capital)

Opportunity cost

Value of the next best alternative given up when making a choice

Sunk cost

Past cost that cannot be recovered; ignore when making decisions

Demand

The ENTIRE relationship between price and quantity demanded (the whole curve)

Quantity demanded

A SPECIFIC amount at a specific price (one point on the demand curve)

Quantity demanded

A SPECIFIC amount at a specific price (one point on the demand curve)

Supply

The ENTIRE relationship between price and quantity supplied (the whole curve)

Quantity supplied

A SPECIFIC amount at a specific price (one point on the supply curve)

Equilibrium

Where quantity demanded = quantity supplied; no pressure for price to change

Surplus (excess supply)

Quantity supplied > quantity demanded; price is above equilibrium

Shortage (excess demand)

Quantity demanded > quantity supplied; price is below equilibrium

Consumer surplus

What consumers were willing to pay minus what they actually paid

Producer surplus

What producers received minus the minimum they were willing to accept

Social surplus

Consumer surplus + producer surplus; maximised at equilibrium

Deadweight loss

Loss in social surplus from an inefficient market outcome

Price ceiling

Legal maximum price; if set below equilibrium, creates a shortage

Price floor

Legal minimum price; if set above equilibrium, creates a surplus

Externality

Impact on a third party not involved in the market transaction

Negative externality

Third party is harmed; market overproduces relative to social optimum

Positive externality

Third party benefits; market underproduces relative to social optimum

Price elasticity of demand

% change in Qd ÷ % change in price (absolute value)

Elastic demand (PED > 1)

Quantity demanded is very responsive to price changes

Inelastic demand (PED < 1)

Quantity demanded is not very responsive to price changes

Price elasticity of supply

% change in Qs ÷ % change in price

Fixed cost

Does not change with output (e.g., rent, machinery)

Variable cost

Changes with output (e.g., labour, raw materials)

Marginal cost

Cost of producing one more unit = ∆TC ÷ ∆Q

Average total cost (ATC)

Total cost ÷ quantity; U-shaped; minimum point = break-even price

Economies of scale

Average cost FALLS as output rises (long run)

Diseconomies of scale

Average cost RISES as output increases (firm too large to manage)

Perfect competition

Many identical firms; free entry/exit; price takers; P = MC

Monopoly

Single seller; high barriers; MR < P; produces less, charges more than PC

Monopolistic competition

Many differentiated firms; free entry; zero economic profit in long run

Oligopoly

Few large firms; high barriers; mutual interdependence

Collusion

Firms secretly agree to restrict output and raise prices (illegal)

Cartel

Formal agreement among firms to collude

Dominant strategy

The choice a firm makes regardless of what rivals do

Four-firm concentration ratio

Sum of market shares of the four largest firms

HHI

Sum of squared market shares; measures concentration; used by regulators

Antitrust law

Laws preventing firms from gaining excessive market power

Regenerative business

Working with Earth's cycles; restoring rather than depleting resources

Distributive business

Sharing value fairly with all who co-create it

dougnut economics

Dougnut economics is a framework that aims to meet the needs of all people within the means of the living planet, By staying within a social foundation and and an ecological ceiling