Supply & Demand (Basics & Elasticity)
A table or curve showing the quantity buyers are willing to purchase at various prices.
What is Demand?
This type of firm is a "price taker," where P = MR = MC at equilibrium.
What is Perfect Competition?
The additional revenue a firm earns from hiring one additional unit of labor.
What is Marginal Revenue Product (MRP)?
An uncompensated side effect of a transaction that harms a third party.
What is a Negative Externality?
Costs that do not change with the level of output (e.g., rent).
What are Fixed Costs?
A measure of responsiveness of quantity demanded to a change in price, calculated as % Change in Quantity Demanded divided by % Change in Price.
What is Price Elasticity of Demand?
The sole seller of a product with no close substitutes, protected by barriers to entry.
What is a Monopoly?
In a perfectly competitive labor market, firms hire workers up to the point where MRP equals this.
What is the Wage (or MFC)?
Goods that are non-rival and non-excludable, often leading to the free-rider problem.
What are Public Goods?
The change in total cost resulting from producing one additional unit.
What is Marginal Cost?
A legal maximum price, set below equilibrium, which causes a shortage.
What is a Price Ceiling?
A market structure with a few large firms that are mutually interdependent.
What is Oligopoly?
A firm that is the sole buyer of labor in a market.
What is a Monopsony?
The reduction in total consumer and producer surplus resulting from market inefficiency.
What is Deadweight Loss?
A curve showing the maximum combinations of two goods an economy can produce, illustrating efficiency and tradeoffs.
What is the Production Possibilities Curve (PPC)?
If an increase in income leads to a decrease in demand for a good, the good is considered this.
What is an Inferior Good?
A strategy in game theory that is best for a firm, regardless of what the competitor does.
What is a Dominant Strategy?
This law states that as more units of a variable input are added, the additional output will eventually decline.
What is the Law of Diminishing Marginal Returns?
To correct a positive externality, the government should provide this to consumers or producers.
What is a Subsidy?
The long-run average cost curve decreases as output increases due to this concept.
What are Economies of Scale?
The formula for cross-price elasticity of demand, determining if two goods are substitutes or complements.
What is % change in quantity demanded for good A divided by % change in price for good B?
To maximize profit, a monopolist will produce where this condition holds true.
What is Marginal Revenue equals Marginal Cost (MR = MC)?
The rule for hiring inputs to minimize costs while maximizing profit, involving marginal product per dollar.
What is MPL/PL = MPC/PC?
This coefficient is a common measure of income inequality within a nation.
What is the Gini Coefficient?
The formula for Average Total Cost.
What is Total Cost / Quantity (or ATC = AFC + AVC)?