Microeconomics - the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact
Household - a person or group of people who share their income a person or group of people who share their income
Firm - the branch of economics that studies how individuals, households, and firms make decisions and how those decisions interact
Macroeconomics - the branch of economics that is concerned with the overall ups and downs of the economy
Model - a simplified representation used to better understand a real-life situation
Other things equal assumption - in the development of a model, the assumption that all other relevant factors remain unchanged; also known as the ceteris paribus assumption
Production possibilities curve - illustrates the necessary trade-offs in an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced
Efficient - describes a market or economy in which there is no way to make anyone better off without making at least one person worse off
Economic growth - an increase in the maximum amount of goods and services an economy can produce
Technology - the technical means for producing goods and services
Trade - when, in a market economy, individuals provide goods and services to others and receive goods and services in return
Specialization - situation in which each person specializes in the task that they are good at performing; key source of the gains from trade
comparative advantage - the advantage held by an individual if their opportunity cost of producing a good or service is lowest among the people who could produce that good or service; contrasted with absolute advantage
Absolute advantage - the advantage held by an individual when producing a good or service if they can make produce more with a given amount of time and resources; contrasted with comparative advantage
Terms of trade - indicate the rate at which one good can be exchanged for another
Demand schedule - a table that shows how much of a good or service consumers will be willing and able to buy at different prices
Quantity demanded - the actual amount of a good or service consumers are willing and able to buy at some specific price; shown as a single point in the demand schedule or along a demand curve
Demand curve - a graphical representation of the demand schedule; shows the relationship between quantity demanded and price
Law of demand - says that a higher price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service
Change in demand - a shift of the demand curve, which changes the quantity demanded at any given price
Movements along the demand curve - a change in the quantity demanded of a good that is the result of a change in that good’s price
Substitutes - two goods for which a rise in the price of one of the goods leads to an increase in the demand for the other good
Complements - two goods (often consumed together) for which a rise in the price of one of the goods leads to a decrease in the demand for the other good
Normal goods - describes a good for which a rise in income increases the demand for the good
Inferior goods - describes a good for which a rise in income decreases the demand for the good
Quantity supplied - the actual amount of a good or service people are willing to sell at some specific price
Supply schedule - shows how much of a good or service producers would supply at different prices
Supply curve - shows the relationship between the quantity supplied and the price
Law of supply - says that, other things being equal, the price and quantity supplied of a good are positively related
Change in supply - a shift of the supply curve, which indicates a change in the quantity supplied at any given price
Movements along the supply curve - a change in the quantity supplied of a good arising from a change in the good’s price
Input - a good or service that is used to produce another good or service
Substitutes in production - describes two goods for which producers can use the same inputs to make either
Complements in production - describes two goods for which increased production of either good creates more of the other
Equilibrium - an economic situation in which no individual would be better off doing something different; a competitive market is in equilibrium when the supply and demand curves intersect
Equilibrium price - in a competitive market, the price of a good at which the quantity demanded of that good equals the quantity supplied of that good; also known as the market-clearing price
Equilibrium quantity - the quantity of a good bought and sold at its equilibrium price
Disequalibrium - when the market price is above or below the price that equates the quantity demanded with the quantity supplied
Surplus - when the quantity supplied of a good or service exceeds the quantity demanded; occurs when the price is above its equilibrium level; also known as excess supply
Shortage - when the quantity demanded of a good or service exceeds the quantity supplied; occurs when the price is below its equilibrium level; also known as excess demand
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