Comprehensive CORE Microeconomics Glossary Study Notes

Microeconomics Glossary: Terms A

• Absolute Advantage: A person or a country has an absolute advantage in the production of a particular good if, given a set of available inputs, they can produce more of it than another person or country.
• Adverse Selection (Hidden Attributes): A hidden-attributes or adverse-selection problem occurs when some characteristic of a product or service being exchanged is not known to the other parties. For example, someone purchasing health insurance knows their own health status, but the insurance company does not. The lack of information affects the price at which the uninformed party is willing to buy or sell, and this can lead to an 'adverse selection' of goods in the market (e.g., only the least healthy people wanting to buy health insurance).
• Allocation: In an economic interaction, an allocation is a particular distribution of goods or other things of value to all participants.
• Altruism: Altruism is a social preference; a person who is willing to bear a cost to benefit somebody else is said to be altruistic.
• Artificially Scarce: A good is artificially scarce if it is non-rival (can be supplied to more users at no additional cost) but some users are excluded from using it, either directly or because the price is greater than their willingness to pay. (See also: excludable public good).
• Asset: Something that is owned and has value.
• Asymmetric Information (Asymmetry of Information): Information that is relevant to the parties in an economic interaction, but is known by some but not by others. (See also: adverse selection, moral hazard).
• Average Cost: The total cost of producing the firm's output divided by the total number of units of output produced.
• Average Product: The average product of an input is total output divided by the total amount of the input. For example, the average product of a worker (also known as labour productivity) is total output divided by the number of workers employed to produce it.

Microeconomics Glossary: Terms B

• Bargaining Power: The extent of a person or firm's advantage in securing a larger share of the economic rents made possible by an interaction.
• Barriers to Entry (Entry Barriers): Refers to anything making it difficult for new firms to enter a market, such as intellectual property rights or economies of scale in production.
• Best Response: In game theory, a player's best response is the strategy that will bring about the player's most-preferred outcome, given the strategies adopted by the other players.
• Bond: A financial asset where the government (or a company) borrows for a set period of time and promises to make regular fixed payments to the lender (and to return the money when the period is at an end).
• Budget Constraint: An equation that represents all combinations of goods and services one could acquire that would exactly exhaust one's budgetary resources.

Microeconomics Glossary: Terms C

• Capital Goods (Capital): Durable and costly non-labour inputs used in production (e.g., machinery, equipment, buildings). They do not include some essential inputs (e.g., air, water, knowledge) that are used in production at zero cost to the user.
• Capitalism: An economic system in which the main form of economic organization is the firm, where the private owners of capital goods hire labour to produce goods and services to be sold in markets with the intent of making a profit. The main economic institutions in a capitalist economic system are private property, markets, and firms.
• Cartel: A group of firms that collude (work together) to set output and/or prices in order to raise their joint profits.
• Causal / Causality / Causation: A relationship between two variables is causal if a change in one variable produces a change in the other. While a correlation is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept. (See also: natural experiment, correlation).
• Central Planning: In a centrally-planned economy, decisions about what to produce and how are taken by the government, rather than by firms responding to market prices.
• Ceteris Paribus: Economists simplify analysis by setting aside things that are thought to be of less importance to the question of interest. The literal meaning of the expression is 'other things equal'. In an economic model, it means an analysis 'holds other things constant'.
• Collateral: An asset that a borrower pledges to a lender as security for a loan. If the borrower is not able to make the loan payments as promised, the lender becomes the owner of the asset.
• Common-Pool Resource: A resource that is rival or partially rival (more people using it reduces the benefits to others) but non-excludable within a community of users. All members of the community are able (and in some cases have a legal right) to use it, but outsiders can be excluded.
• Comparative Advantage: A person or a country has a comparative advantage in the production of a particular good if the cost to them of producing it, relative to the cost of another good, is lower than for another person or country. (See also: absolute advantage).
• Competition Policy (Antitrust Policy): Government policies and laws to limit market power and prevent cartels, or to otherwise regulate the process of competition, are collectively known as competition policy or antitrust policy.
• Competitive Equilibrium: A market is in competitive equilibrium if the quantity supplied is equal to the quantity demanded at the prevailing price, and all buyers and sellers are price-takers, so that no-one can benefit from attempting to trade at a different price.
• Complete Contract: A contract is complete if it:
  • Covers all of the aspects of the exchange in which any party to the exchange has an interest.
  • Is enforceable (by the courts) at close to zero cost to the parties.
• Concave / Concave Function: A function, $f(x)$, is said to be concave if its second derivative is negative for all values of $x$.
• Conflict of Interest: The situation that arises in an interaction if, in order for one party to gain more, another party must do less well.
• Congestible Public Goods: If a public good becomes partially rival as more people use it, it may be described as a congestible public good.
• Conspicuous Consumption: The purchase of goods and services to publicly display one's social and economic status.
• Constant Returns to Scale: When production exhibits constant returns to scale, increasing all of the inputs to a production process by the same proportion increases output by the same proportion. The shape of a firm's long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. (See also: increasing returns to scale, decreasing returns to scale).
• Constrained Choice Problem: A problem in which a decision-maker chooses the values of one or more variables to achieve an objective (such as maximizing profit, or utility) subject to a constraint that determines the feasible set (such as the demand curve, or budget constraint).
• Consumer Good: Any good that can be bought by consumers, including both short-lived goods and long-lived goods, which are called consumer durables.
• Consumer Surplus: Each consumer who buys a good receives a surplus equal to their willingness to pay minus the price. The term 'consumer surplus' normally refers to the sum of these surpluses across all consumers.
• Consumption: Expenditure on consumer goods. Consumer goods include both short-lived goods and services and long-lived goods (consumer durables).
• Consumption Smoothing: Actions taken by an individual, family, or other group in order to sustain their customary level of consumption. Actions include borrowing or reducing savings to offset negative shocks (such as unemployment or illness) and increasing saving or reducing debt in response to positive shocks (such as promotion or inheritance).
• Contract: A legal document or understanding that specifies a set of actions that parties to the contract must undertake.
• Convex / Convex Function: A function, $f(x)$, is said to be convex if its second derivative is positive for all values of $x$.
• Convex Preferences: A person whose indifference curves have a convex shape—they get flatter as you move along the curve to the right of the diagram—is said to have convex preferences. This typical shape arises because when someone has more of one good (relative to another) they are willing to give up more of it in exchange for a unit of the other good: their marginal rate of substitution falls along the curve.
• Cooperation: Participating in a common project that is intended to produce mutual benefits.
• Cooperative Firm (Worker-Owned Cooperative): A cooperative is a business organization whose members together own the assets of the organization; they share the income resulting from their activities and jointly determine how the organization will be run. A worker-owned cooperative is a firm that is mostly or entirely owned by its workers, who hire and fire the managers.
• Coordination Game: A game in which there are two Nash equilibria, one of which may be Pareto superior to the other. (Also known as: assurance game).
• Copyright: Ownership rights over the use and distribution of an original work.
• Correlation: Two variables in a sample of data are said to be correlated if we observe that they tend to change together. If high values of one variable (e.g., people's earnings) commonly occur along with high values of another variable (e.g., years of education), the variables are positively correlated. When high values of one variable (e.g., ice cream sales) are associated with low values of another variable (e.g., number of people wearing winter coats), there is a negative correlation. Correlation does not imply causation. (See also: causality).
• Cost Function: The relationship between a firm's total costs and its quantity of output. The cost function $C(Q)$ tells you the total cost of producing $Q$ units of output (including the opportunity cost of capital).
• Costs of Entry: Startup costs that are incurred when a seller enters a market or an industry. These usually include the cost of acquiring and equipping new premises, research and development, necessary patents, and initial costs of finding staff.
• Creative Destruction: Joseph Schumpeter's term for the process by which old technologies and non-adapting firms are swept away by new ones because they cannot compete in the market. The failure of unprofitable firms is creative because it releases labour and capital goods for use in new combinations.
• Credit Market Constrained: A description of individuals who are limited in how much they can borrow or can borrow only on unfavourable terms. (See also: credit market excluded).
• Credit Market Excluded: A description of individuals who are unable to borrow on any terms. (See also: credit market constrained).
• Crowding Out / Crowded Out: Has two distinct uses:
  1. A negative effect observed when economic incentives displace people's ethical or social motivations (incentives crowding out social preferences).
  2. The effect of an increase in government spending in reducing private spending, as expected in an economy at full capacity utilization or when fiscal expansion raises interest rates.

Microeconomics Glossary: Terms D

• Deadweight Loss: A measure of the total loss of surplus (potential gains from trade) relative to the maximum available in the market.
• Decile / Decile Groups: Deciles split a set of observations into ten equally-sized groups. Ordered by a variable (e.g., income), the first decile group represents the bottom $10\%$ (e.g., lowest incomes), the second is the next lowest $10\%$, and the tenth is the top $10\%$. Deciles are the cutoff values separating these groups.
• Decreasing Returns to Scale / Diseconomies of Scale / Decreasing Returns: When production exhibits decreasing returns to scale, increasing all inputs by the same proportion increases output by a lower proportion. Long-run average cost curve shape depends on returns to scale and input price scale effects. (See also: increasing returns to scale, constant returns to scale).
• Demand Curve: A demand curve shows the number of units of a good that buyers would wish to buy at any given price. (Also known as: demand function).
• Democracy: A political system that ideally gives equal political power to all citizens, defined by individual rights (freedom of speech, assembly, press), fair elections eligible to virtually all adults, and where government leaves office if it loses.
• Depreciation (of an Asset): The loss in value of a form of wealth that occurs either through use (wear and tear) or the passage of time (obsolescence).
• Developmental State: A government that takes a leading role in promoting economic development through public investments, subsidies for particular industries, education, and other public policies.
• Differentiated Product: A product produced by a single firm that has unique characteristics compared to similar products of other firms.
• Diminishing Average Product of Labour: A property of a production process in which, as labour input is increased, output per unit of labour (average product) falls.
• Diminishing Marginal Utility: If the value to an individual of an additional unit of a good declines the more that is consumed, holding constant other goods, the good exhibits diminishing marginal utility.
• Discount Rate: A measure of impatience: how much a person values an additional unit of consumption now relative to later. Equal to the slope of the indifference curve for present vs. future consumption minus one. (Also known as: subjective discount rate).
• Disequilibrium Rent: The economic rent arising when a market is not in equilibrium (e.g., excess demand or excess supply). Rents arising in equilibrium are called equilibrium rents.
• Division of Labour: The specialization of producers to carry out different tasks in the production process.
• Dominant Strategy: A strategy that yields the highest pay-off for a player, regardless of the strategies chosen by other players.
• Dominant Strategy Equilibrium: A Nash equilibrium in which the strategies of all players are dominant strategies.

Microeconomics Glossary: Terms E

• Earnings: Wages, salaries, and other income from labour.
• Economic Cost: Direct costs of an action (including monetary costs and effort costs) plus opportunity cost.
• Economic Rent: The difference between the net benefit (monetary or otherwise) received from a chosen action and the net benefit from the next best alternative (reservation option). (See also: reservation option).
• Economics: The study of how people interact with each other and with their natural environment in producing and acquiring their livelihoods, and how this changes over time and differs across societies.
• Economic System: A way of organizing the economy that is distinctive in its basic institutions. Examples include central economic planning, feudalism, slave economy, and capitalism.
• Economies of Scope: Cost savings occurring when two or more products are produced jointly by a single firm rather than separately by different firms.
• Employment Contract: A system in which producers are paid for the time they work for their employers.
• Employment Rent: The economic rent a worker receives when the net value of their job exceeds the net value of their next best alternative (unemployment). (See also: economic rent).
• Endogenous: Meaning 'generated by the model'. A variable whose value is determined by the workings of the model itself. (See also: exogenous).
• Endowment: A person's resources enabling them to receive income, including physical wealth, financial wealth, intellectual property, skills/knowledge, citizenship, and social/demographic characteristics if they affect income.
• Enforceable Contract: A contract that is legally binding because a court can establish whether both parties complied with its terms.
• Entrepreneur: A person who creates or is an early adopter of new technologies, organizational forms, and other opportunities.
• Equilibrium: A situation or model outcome that is self-perpetuating: once reached, it does not change unless disturbed by an external force determined outside the model.
• Equilibrium Price: The price at which supply and demand are equalized (market-clearing price), or the price level in equilibrium in other models. (See also: market-clearing price).
• Equity: Shares (stocks) in a business representing net worth; or a share of ownership in any asset. Alternatively, used to denote fairness.
• Evolutionary Economics: An approach studying economic change, including technological innovation, diffusion of social norms, and institutional development.
• Excess Demand: A situation where quantity demanded exceeds quantity supplied at the current price.
• Excess Supply: A situation where quantity supplied exceeds quantity demanded at the current price.
• Excludable / Excludability: A good is excludable if a potential user can be denied access at zero or low cost.
• Excludable Public Good (Club Good): A good that is non-rival but excludable (e.g., satellite TV).
• Exogenous: Meaning 'generated outside the model'. A variable set by the modeller rather than determined by model workings. (See also: endogenous).
• Exogenous Shock: A change in one or more exogenous variables held constant by the modeller.
• External Benefit (Positive Externality / External Economy): A positive effect of an economic decision on others not taken into account by the decision-maker.
• External Cost (Negative Externality / External Diseconomy): A negative effect of an economic decision on others not taken into account by the decision-maker.
• External Effect (Externality): Occurs when an action confers an uncompensated benefit or imposes an uncompensated cost on others.

Microeconomics Glossary: Terms F - G

• Factor of Production: Any input into a production process (labour, capital, land, energy, raw materials).
• Fairness: Evaluating an allocation based on a conception of justice.
• Feasible Frontier: Curve/line defining the maximum feasible quantity of one good for a given quantity of another. (See also: feasible set).
• Feasible Set: All combinations of goods or outcomes a decision-maker can choose given constraints. (See also: feasible frontier).
• Firm: An economic organization in which private owners of capital goods hire and direct labour to produce goods/services for market sale to make profit.
• Firm-Specific Asset: An asset valuable only within a specific firm (e.g., firm-specific knowledge or skills).
• Fixed Costs: Production costs that do not vary with output quantity.
• Fixed Investment (Gross Fixed Capital Formation): Investment by firms and government in new capital goods plus new residential buildings.
• Fixed-Proportions Technology: Technology requiring inputs in fixed proportions; output expansion requires scaling all inputs equally.
• Flow: Quantity measured per unit of time (e.g., weekly income). (See also: stock).
• Free Rider / Free Riding / Free Ride: Benefiting from others' contributions to a cooperative project without contributing oneself.
• Gains from Trade (Gains from Exchange): Benefits each party derives from a transaction compared to no transaction.
• Game: Model of strategic interaction detailing players, feasible strategies, play order, information, and pay-offs.
• Game Theory: Mathematical study of strategic interactions where outcomes depend on all actors' choices.
• Gender Division of Labour: Differences in how men and women allocate paid and unpaid work time.
• Gini Coefficient: Measure of inequality ranging from $0$ (perfect equality) to $1$ (total inequality).
• Goods: Anything an individual values and wants more of (including non-market goods like free time or clean air).
• Government Bond: Financial asset where government borrows for a fixed period with regular interest and principal repayment.
• Gross Domestic Product (GDP): Market value of final output of goods/services produced in an economy over a given period.

Microeconomics Glossary: Terms H - I

• Hawk–Dove Game: Coordination game where players prefer opposite choices, yielding two Nash equilibria: (Hawk, Dove) and (Dove, Hawk).
• Homo Economicus: Latin for 'economic man', describing an actor who makes decisions strictly out of self-interest.
• Human Capital: Stock of knowledge, skills, traits, and characteristics determining individual labour productivity and earnings.
• Impatience: Preference to consume sooner rather than later (situational or intrinsic).
• Incentive: Economic reward or punishment influencing choices.
• Income / Disposable Income: Maximum spending without borrowing/saving reduction after taxes and government transfers.
• Income Effect: Effect of an income change on good demand by expanding/contracting the feasible set. (See also: substitution effect).
• Incomplete Contract: Contract failing to legally specify/enforce every aspect of exchange affecting parties' interests.
• Increasing Returns to Scale (Economies of Scale): Output increases by a higher proportion than the proportional increase in inputs.
• Indifference Curve: Curve joining combinations of goods yielding equal utility.
• Industrial Revolution: 18th-century British technological/organizational wave transforming agriculture/craft into industrial economy.
• Inequality Aversion: Preference for equal outcomes and dislike of outcome inequality.
• Innovation Rent: Profits exceeding opportunity cost of capital from introducing new technology/methods.
• Institution: Laws and informal rules regulating social/environmental interactions ('rules of the game').
• Interest Rate (Rate of Interest): Price of bringing buying power forward in time by borrowing.
• Intertemporal Choice Model: Model of borrowing, lending, and investing to shift purchasing power across time.
• Inventories: Goods held by a firm prior to sale or use (raw materials, work-in-progress, finished goods).
• Inventory Investment: Value change in firm inventories.
• Investment: Spending to generate future returns (financial assets, real estate, capital goods, inventories).
• Invisible Hand Game: Game with a single Nash equilibrium that is Pareto efficient.
• Involuntary Unemployment: Seeking work at going wages for skill level but unable to find a job.
• Isocost Line: Line showing all input combinations costing a specific total amount.
• Isoprofit Curve: Curve connecting price-quantity combinations yielding equal firm profit.

Microeconomics Glossary: Terms L - M

• Joint Surplus: Sum of economic rents of all participants in an economic interaction.
• Labour Discipline Problem / Model: Employer challenge of ensuring employee effort; solved by setting wages above fallback options to create employment rent.
• Labour Force: Working-age population employed or actively seeking employment.
• Labour Market: Market where employers demand labour and employees supply labour for wages.
• Labour Market Power: Employer ability to lower wages by reducing worker headcount (monopsony power).
• Labour Productivity: Output produced per unit of labour input (average product of labour).
• Law of One Price: In equilibrium, identical goods trade at the exact same price across all buyers/sellers.
• Long Run: Period where variables held constant in the short run become variable/endogenous.
• Lorenz Curve: Graphical representation of inequality plotting cumulative income/wealth percentage against cumulative population percentage.
• Marginal Change: Change in variable $y$ resulting from a small increase in variable $x$ (derivative).
• Marginal Cost: Increase in total cost from producing one additional unit of output.
• Marginal External Benefit (MEB): Benefit of an extra unit to non-decision makers. Marginal Social Benefit is:   $\text{MSB} = \text{MEB} + \text{MPB}$
• Marginal External Cost (MEC): Cost of an extra unit imposed on non-producers. Marginal Social Cost is:   $\text{MSC} = \text{MEC} + \text{MPC}$
• Marginal Private Benefit (MPB): Benefit to decision-maker from consuming/producing an extra unit.
• Marginal Private Cost (MPC): Direct cost to producer of producing an extra unit.
• Marginal Product: Additional output produced from a 1-unit increase in a specific input.
• Marginal Rate of Substitution (MRS): Trade-off a person is willing to make between two goods (absolute slope of indifference curve).
• Marginal Rate of Transformation (MRT): Quantity of a good sacrificed to obtain one unit of another good (absolute slope of feasible frontier).
• Marginal Revenue: Change in total revenue from selling one extra unit.
• Marginal Social Benefit (MSB): Total benefit of an extra unit:   $\text{MSB} = \text{MPB} + \text{MEB}$
• Marginal Social Cost (MSC): Total cost of an extra unit:   $\text{MSC} = \text{MPC} + \text{MEC}$
• Marginal Utility: Additional utility gained from consuming one extra unit of a good.
• Market: Way for people to exchange goods/services through reciprocated, voluntary, often impersonal transfers.
• Market Clearing: Condition where quantity supplied equals quantity demanded.
• Market-Clearing Price: Price at which quantity demanded equals quantity supplied.
• Market Failure: Situation where market allocation is Pareto inefficient.
• Market Power: Firm ability to set price above competitive level without losing all sales.
• Market Share: Firm proportion of total industry revenue or volume.
• Matching Market: Two-sided market connecting distinct groups needing specific partners (e.g., job seekers and firms).
• Merit Good: Good/service that should be universally available regardless of ability to pay.
• Minimum Acceptable Offer: Lowest offer accepted in bargaining or ultimatum games.
• Minimum Wage: Legally mandated lowest wage rate payable to workers.
• Missing Market: Absence of a market for a beneficial trade due to asymmetric/unverifiable information.
• Monopoly: Sole seller of a good without close substitutes.
• Monopsony Power: Buyer/employer power to drive down wages/prices by reducing purchases/hiring.
• Moral Hazard (Hidden Actions): Principal-agent conflict where agent action cannot be observed/verified.

Microeconomics Glossary: Terms N - O

• Nash Equilibrium: Outcome where no player can improve their pay-off by unilaterally changing strategy.
• Natural Experiment: Empirical study using natural/exogenous variation between populations to analyze causal effects.
• Natural Monopoly: Industry where downward-sloping long-run average costs make a single firm most efficient.
• Network Economies of Scale: Increasing utility/value of a good as user network size expands.
• Net Worth: Total assets minus total liabilities (wealth).
• Nominal Interest Rate: Interest rate unadjusted for inflation.
• Non-Excludable: Impossible to prevent anyone from accessing the good.
• Non-Rival: Consumption by one person does not diminish availability to others.
• Non-Verifiable Information: Information impossible to enforce in court.
• Normal Profits: Return required to retain investors; equal to opportunity cost of capital (zero economic profit).
• No-Shirking Condition: Wage condition ensuring effort pay-off meets or exceeds shirking pay-off.
• No-Shirking Wage: Minimum wage motivating required effort level.
• Open-Access Resource: Rival but non-excludable resource accessible to all.
• Opportunity Cost: Value of the next best alternative forgone.
• Opportunity Cost of Capital: Foregone rate of return from alternative investments.

Microeconomics Glossary: Terms P

• Pareto Criterion: Judgment stating Allocation A dominates Allocation B if at least one person is better off and no one is worse off.
• Pareto Dominate / Dominant: Allocation A is Pareto dominant over B if it improves at least one person's wellbeing without harming anyone.
• Pareto Efficiency Curve: Set of all Pareto efficient allocations (contract curve).
• Pareto Efficient: Allocation where no feasible reallocation can make someone better off without making someone else worse off.
• Pareto Improvement: Change benefiting at least one person without hurting anyone.
• Patent: Legal monopoly right over an invention for a specified time period.
• Pay-off: Benefit received by a player from joint game actions.
• Perfect Competition: Market structure with price-taking buyers/sellers, homogeneous goods, and market clearing.
• Perfectly Competitive: Market in competitive equilibrium with price-taking buyers and sellers.
• Piece Rate: Compensation structure paying fixed amounts per unit produced.
• Pigouvian Subsidy: Subsidy designed to correct positive externalities.
• Pigouvian Tax: Tax designed to internalize negative externalities.
• Political System: Rules determining government selection and policy execution.
• Power: Ability to achieve objectives despite opposition from others.
• Preferences: Individual ordering and valuation of alternative choices.
• Price Discrimination: Charging different prices to different buyers based on willingness to pay.
• Price Elasticity of Demand: Percentage change in demand from a $1\%$ price increase.
• Price Markup: Profit margin relative to price:   $\frac{P - MC}{P}$
• Price-Taker: Individual unable to influence market price.
• Principal–Agent Relationship: Situation where principal hires agent to act on their behalf under incomplete contracting.
• Prisoners' Dilemma: Game with dominant strategy equilibrium that is Pareto inefficient.
• Private Good: Good that is both rival and excludable.
• Private Property: Legal right to exclude others, benefit from, and transfer ownership of an asset.
• Procedural Judgement of Fairness: Evaluating fairness based on process rather than outcomes.
• Producer Surplus: Sum of price minus marginal cost across all units sold.
• Production Function: Graphical/mathematical representation of output produced from given inputs.
• Profit (Economic Profit): Total revenue minus total economic costs (including opportunity cost of capital).
• Profit Margin: Difference between product price and marginal cost.
• Property Rights: Legal rules specifying asset usage, exclusion, and transferability.
• Public Good: Non-rival and non-excludable good.
• Public Good Game: Game where individual contributions benefit all players at personal cost.
• Purchasing Power Parity (PPP): Price indices equalizing purchasing power across currencies (e.g., benchmarked to US dollars in 2011).

Microeconomics Glossary: Terms Q - R

• Quasi-Linear Function: Utility function linear in one good and non-linear in another.
• Real Interest Rate: Nominal interest rate adjusted for expected inflation.
• Reciprocity: Desire to reward kind actions and punish unkind actions.
• Relationship-Specific Asset: Asset holding value only within a specific economic relationship.
• Relative Price: Ratio of prices between two goods.
• Rent Ceiling: Maximum legal price chargeable for housing rent.
• Research and Development (R&D): Expenditures directed toward innovation and knowledge generation.
• Reservation Indifference Curve: Curve showing combinations yielding equal utility to fallback option.
• Reservation Option: Next best alternative option in a transaction.
• Reservation Price: Lowest price at which a seller is willing to sell.
• Reservation Wage: Lowest wage a worker accepts to take a job.
• Residual Claimant: Person receiving leftover revenue after paying all contractual costs.
• Risk Aversion / Risk-Averse: Preferring a deterministic outcome (e.g., $\$100$ for sure) over a risky outcome with equal expected value (e.g., a $50\text{--}50$ chance of $\$200$ or nothing).
• Rival / Partially Rival: Good where consumption by one person reduces or eliminates availability to others.

Microeconomics Glossary: Terms S

• Saving: Net income exceeding consumption expenditure.
• Scarcity: State where acquiring more of a valued good entails an opportunity cost.
• Search Unemployment: Unemployment resulting from job matching friction.
• Separation of Ownership and Control: Governance structure where managers are separate from owners.
• Sequential Game: Game where players move sequentially with knowledge of prior choices.
• Shares / Stocks: Ownership certificates granting proportional profit rights.
• Short Run: Period in which certain model variables (capital, technology) remain fixed.
• Simultaneous Game: Game where players move concurrently without observing others' moves.
• Social Dilemma: Situation where individual self-interest leads to Pareto inefficient outcomes.
• Social Interactions: Situations where actions affect individual and collective outcomes.
• Social Norm: Common understanding of acceptable behavior in social interactions.
• Social Preferences: Preferences incorporating others' outcomes into individual utility.
• Stock: Quantity measured at a specific point in time (e.g., capital stock).

Microeconomics Glossary: Terms T - V

• Strategic Interaction: Social interaction where actors consider how actions impact each other.
• Strategy: Action plan chosen in strategic environments.
• Subsistence Level: Minimum living standard necessary to prevent population decline.
• Substantive Judgement of Fairness: Evaluating outcome fairness directly based on allocation characteristics.
• Substitutes: Goods consumed in place of one another due to price changes.
• Substitution Effect: Demand change caused purely by relative price changes.
• Supply Curve: Function showing quantity supplied across various price levels.
• Tax Incidence: Distribution of tax burden between buyers and sellers.
• Technological Progress: Advances reducing input requirements for output production.
• Technology: Process converting inputs into outputs.
• Total Costs: Complete monetary and economic costs incurred in production.
• Total Revenue: Total monetary inflow ($\text{Price} \times \text{Quantity}$).
• Transaction Costs: Costs impeding economic exchange (information, enforcement costs).
• Ultimatum Game: Sequential bargaining game involving a Proposer and Responder.
• Unemployment Benefit: Public transfers paid to unemployed individuals.
• Utility: Numerical index representing outcome preferences.
• Utility Function: Mathematical formula mapping consumption combinations to utility levels.
• Variable Costs: Production costs scaling with output volume.
• Veblen Effect: Negative consumption externality driven by status-signaling luxury goods.
• Verifiable Information: Information capable of legal proof in court.

Microeconomics Glossary: Terms W

• Wealth: Total stock of assets owned minus liabilities.
• Willingness to Accept (WTA): Minimum monetary compensation required to part with a good (reservation price).
• Willingness to Pay (WTP): Maximum monetary amount a buyer is willing to spend for a good.