Economics — Microeconomics Fundamentals

Production Possibility Frontier (PPF)

A curve depicting all maximum output possibilities for two goods, given a set of inputs.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Price Ceiling

A legal maximum price that can be charged for a product, leading to potential shortages.

Monopoly

A market structure where a single firm controls the entire market for a good or service.

What effect does a subsidy have on supply?

A subsidy increases supply by lowering production costs for producers.

Cross-Price Elasticity of Demand

The responsiveness of the quantity demanded for one good to a change in the price of another good.

Normal Good

A good for which demand increases as consumer income rises.

Inferior Good

A good for which demand decreases as consumer income rises.

What is the significance of the Nash Equilibrium in game theory?

It represents a situation where no player can benefit by changing strategies if other players keep theirs unchanged.

Supply Curve

A graph showing the relationship between the price of a good and the quantity supplied.

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay.

Deadweight Loss

The loss of economic efficiency when the equilibrium for a good or service is not achieved or is not achievable.

What is the role of price in a market economy?

Prices act as signals to both buyers and sellers, helping to allocate resources efficiently.

What happens to the equilibrium price if both demand and supply increase?

The equilibrium quantity will increase, but the change in equilibrium price depends on the relative magnitudes of shifts in demand and supply.

Marginal Utility

The additional satisfaction or benefit received from consuming one more unit of a good or service.

What is the difference between short-run and long-run in economics?

In the short-run, at least one input is fixed, while in the long-run, all inputs can be varied.

Price Elasticity of Supply

The responsiveness of the quantity supplied of a good to a change in its price.

Complementary Goods

Goods that are often used together, where an increase in the price of one decreases the demand for the other.

Substitute Goods

Goods that can replace each other, where an increase in the price of one increases the demand for the other.

What is the impact of a binding price floor?

It can lead to a surplus, as the price is set above the equilibrium, causing quantity supplied to exceed quantity demanded.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in consumer income.

What is a public good?

A good that is non-excludable and non-rivalrous, meaning one person's consumption does not reduce its availability to others.

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs.

What is the purpose of antitrust laws?

To prevent monopolies and promote competition by prohibiting practices that restrain trade.

Diminishing Marginal Returns

A situation in which the addition of an input results in a smaller increase in output.