Economics Fundamentals: Microeconomic Principles, Market Mechanics, Consumer Utility, and the Theory of the Firm

Comprehensive vocabulary flashcards covering basic economic concepts, market mechanics, consumer behavior and elasticity, and the theory of business firms.

Scarcity

The fundamental economic problem facing all societies because human wants are unlimited, but resources are limited.

Factors of Production

The four basic inputs of economic production: land, labor, capital, and entrepreneurship.

Human Capital

The knowledge and skills that workers acquire through education and training, contrasted with physical capital (tools and machinery).

Opportunity Cost

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

Production Possibilities Curve (PPC) Inefficiency

A point located strictly inside (underneath) a Production Possibilities Curve representing an inefficient or underutilized allocation of resources.

Production Possibilities Curve (PPC) Unattainable Point

A point located outside a Production Possibilities Curve that cannot currently be attained given existing technology and available resources.

Economic Growth (PPC)

An expansion of an economy's productive capacity, visually represented by an outward shift of the entire Production Possibilities Curve.

Command Economy

An economic system where decisions regarding production and distribution are primarily made by the government.

Invisible Hand

The market force in a pure market economy where price signals and individual self-interest guide resource allocation.

Law of Increasing Opportunity Cost

The economic principle stating that as you produce more of one good, its opportunity cost increases because resources are not perfectly adaptable to all uses.

Pure Public Goods

Goods that are characterized as being both non-excludable and non-rival in consumption.

Law of Demand

The principle stating that as the price of a product increases, the quantity demanded decreases, holding all else constant.

Law of Supply

The principle stating that there is a direct (positive) relationship between market price and quantity supplied.

Normal Good

A good for which demand increases (shifting the demand curve to the right) when consumer income rises.

Substitute Goods

Goods related such that an increase in the price of Good A causes the demand for Good B to increase.

Complementary Goods (Market Demand)

Goods related such that a decrease in the price of Good X causes the demand for Good Y to increase.

Market Equilibrium

The market state occurring at the exact price point where quantity demanded equals quantity supplied.

Market Surplus

A condition of excess supply that occurs when the market price is set above the equilibrium price.

Price Ceiling

A legal maximum price set by the government; to be binding, it must be established below the equilibrium price.

Binding Price Floor

A legal minimum price set above equilibrium that leads to a persistent market surplus.

Technological Improvement (Supply Shift)

An enhancement in production technology that causes a firm's supply curve to shift to the right.

Simultaneous Increase in Demand and Supply

A simultaneous shift where the equilibrium quantity definitely increases, but the effect on equilibrium price is ambiguous.

Utility

A measure of consumer satisfaction or happiness derived from consuming a good or service.

Principle of Diminishing Marginal Utility

The economic principle stating that as more units of a good are consumed, the extra satisfaction gained from each added unit decreases.

Price Elasticity of Demand

A measure of how responsive the quantity demanded is to a change in the product's price.

Elastic Demand

Demand where the absolute value of the price elasticity of demand coefficient is greater than $1$.

Price Inelastic Total Revenue Effect

The relationship where an increase in product price causes total revenue to increase when demand is price inelastic.

Cross-Price Elasticity of Demand (Negative)

A cross-price elasticity coefficient less than $0$, indicating that the two goods are complements.

Inferior Good

A product characterized by a negative income elasticity of demand coefficient.

Deadweight Loss (Excise Tax)

The loss in total social surplus caused by market inefficiency or distortion resulting from an excise tax.

Tax Incidence under Perfectly Inelastic Demand

The condition where buyers bear $100\%$ of the tax burden because the demand curve is vertical (perfectly inelastic).

Maximum Total Utility Condition

The consumption level where total utility reaches its maximum point, occurring when marginal utility equals $0$.

Implicit Costs

Non-monetary opportunity costs of using self-owned resources, as opposed to explicit costs which require monetary payments.

Economic Profit

The difference calculated as Total Revenue minus both explicit and implicit costs.

Short Run

The period of time in which at least one input factor (such as factory size) remains fixed.

Marginal Cost ($MC$)

The change in total cost resulting from producing one additional unit of output.

Profit-Maximization Rule

The condition across any market structure where a firm maximizes profit by producing at the quantity where Marginal Revenue ($MR$) equals Marginal Cost ($MC$).

Economies of Scale

The production situation in which long-run average total cost decreases as output increases.

Price Takers

Individual firms in a perfectly competitive market that face a perfectly elastic demand curve and must accept the market price.

Short-Run Operating Condition

The rule stating that a firm should continue operating in the short run as long as total revenue covers its total variable costs (or $P > AVC$).