Microeconomics terms Flashcards
demand
indication of various quantities of a good the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus
supply
indication of various quantities of a good the producer is willing and able to produce and supply to the market at different possible prices during a particular time period, ceteris paribus
law of demand
There is a negative relationship between the price of a good and its quantity demanded over a particular time period, ceteris paribus
law of supply
There is a positive relationship between the price of a good and its quantity supplied over a particular time period, ceteris paribus
marginal cost
the additional cost of producing one more unit of output
market equilibrium
the situation, when the quantity demanded is equal to the quantity supplied
signal
price communicates information to the decision-maker about the existence of excess in supply or demand
incentive
price motivates decision-maker to respond to the information signaled
allocative efficiency
refers to producing quantity of goods most wanted by socienty
nudge
method of influencing consumers’ choice in the desired way by manipulating the context in which is the decision made
price elasticity of demand
a measure of responsiveness of the quantity of a good demanded to changes in its price
income elasticity of demand
a measure of responsiveness of demand to changes in income (including demand curve shifts)
price elasticity of supply
a measure of responsiveness of the quantity of a good supplied to changes in its price
price controls
the setting of minimum or maximum prices by the government so that prices are not able to adjust to the equilibrium level determined by demand and supply
price ceiling
maximum price set below the equilibrium price to make goods more affordable
price floor
minimum price set above the equilibrium to provide income support to farmers or low skilled workers
welfare loss
welfare benefits lost due to society not allocating resources efficiently
indirect taxes
taxes paid to the government by the producers (but paid by both consumers and producers)
direct taxes
taxes paid directly to the government by taxpayers
subsidy
financial assistance by the government to firms to increase their level of output and lower prices for consumers
rivalrous
its consumption by one person reduces its availability for someone else
excludable
it is possible to exclude someone from using the good
common-pool resources
rivalrous but non-excludable goods
market failure
failure of the market to allocate resources efficiently
allocative inefficiency
too much or too little of the goods are produced or consumed from the point of view of what is socially most desirable
externality
occurs when the actions of consumer or producer give rise to negative or positive side effects on other people who are not part of these actions
marginal private costs
costs to a producer of producing one more unit of good
marginal social costs
costs to society of producing one more unit of good
marginal private benefit
benefit to consumer from consuming one more unit of good
marginal social benefit
benefit to society from consuming one more unit of good
negative production externalities
external costs created by producers
negative consumption externalities
external costs created by consumers
positive production externalities
external benefits created by producers
positive consumption externalities
external benefits created by consumers
public good
non-rivalrous and non-excludable
quasi-public good
non-rivalrous but excludable
private good
rivalrous and exludable
asymetric information
situation where buyers or sellers do not have equall access to information
adverse selection
situation, where one party in a transaction has more information about the quality of the product sold than the other party
moral hazard
situation where one party takes risks but does not face the full costs of these risks because the costs are borne by the other party
market power
the extent to which each individual firm in the industry is able to control the price at which it sells its products
barriers to entry
anything that can prevent a firm from entering an industry
economies of scale
a decrease in the average costs that occurs as a firm increases its output by varying its inputs
natural monopoly
a single firm that can produce for an entire market at a lower average price than two or more firms (due to economies of scale)
game theory
mathematical technique analyzing the behavior of decision-makers who are dependent on each other, and who display strategic behavior
prisoner’s dilemma
a firm can become worse of by trying to increase its profit, this is illustrated at the Nash equilibrium of the payoff matrix
collusion
agreement among firms to fix prices or divide the market between them to limit competition and maximize profit
inferior good
good, for which demand varies inversely with the income
short run
time period during which at least one intput is fixed and cannot be changed
long run
time period during when all inputs can be changed
merit good
a good that is desirable for the consumers but is underprovided by the market
scarcity
condition of having unlimited wants/desires and limited resources
opportunity cost
cost of any activity measured in terms of the value of the next best alternative foregone
sustainability
a situation in which the consumption needs of present generation are met without reducing ability to meet needs of future generations
