Category 1: Law of Demand
This fundamental law states that as price decreases, the quantity demanded increases, holding all else constant.
What is the Law of Demand?
According to the Law of Supply, the relationship between price and quantity supplied is direct, meaning as price increases, quantity supplied does this.
What is increase?
Market equilibrium occurs at the exact point where this curve intersects the supply curve.
What is the demand curve?
A legally established maximum price that sellers are allowed to charge (e.g., rent control) is known as this.
What is a price ceiling?
Costs that do not change regardless of how much output a firm produces (e.g., monthly rent or insurance) are known as these.
What are fixed costs?
This term describes two goods where an increase in the price of one leads to an increase in the demand for the other (e.g., butter and margarine).
What are substitute goods (or substitutes)?
A financial payment made by the government to firms to encourage production and lower costs will cause the supply curve to shift in this direction.
What is to the right (or outward)?
When the prevailing price in a market is set higher than the equilibrium price, this condition occurs because quantity supplied exceeds quantity demanded.
What is a surplus (or excess supply)?
To be effective or "binding," a price floor must be set in relation to the equilibrium price in this specific way.
What is above equilibrium?
Total Revenue minus total explicit costs gives you accounting profit, but subtracting both explicit and implicit costs gives you this type of profit.
What is economic profit?
This economic rule states that as a consumer consumes more units of a good, the extra satisfaction gained from each additional unit decreases.
What is the Law of Diminishing Marginal Utility?
An increase in the price of raw materials or labor will cause the supply curve to shift in this direction.
What is to the left (or inward)?
If a drought destroys half of the corn crop while health trends double consumer demand for corn, this metric will unambiguously increase.
What is equilibrium price?
This per-unit charge placed on producers or consumers shifts the supply or demand curve, resulting in a higher price paid by buyers and a lower net price received by sellers.
What is an excise tax (or per-unit tax)?
Marginal cost is calculated as the change in total cost divided by the change in this variable.
What is quantity
If consumer incomes drop during a recession and the demand for instant noodles goes up, instant noodles are classified as this type of good.
What is an inferior good?
If a technology breakthrough makes smartphone manufacturing twice as fast and cheap, supply shifts right due to an advance in this determinant.
What is an inferior good?
When quantity demanded exceeds quantity supplied because the market price is below equilibrium, this market condition exists.
What is a shortage (or excess demand)?
The loss in economic efficiency (total social welfare) caused by market distortions like price controls or taxes is called this
What is deadweight loss?
Profit maximization for any business firm occurs at the output level where Marginal Revenue (MR) equals this metric.
What is Marginal Cost (MC)?
A movement along a demand curve is caused strictly by a change in this variable, whereas shifts in the curve itself are caused by non-price determinants.
What is price (or the good's own price)?
Unlike short-run supply where at least one factor of production is fixed, all factors of production are variable in this time period.
What is the long run?
This concept measures total consumer and producer surplus at the point where market efficiency is fully maximized with zero deadweight loss.
What is allocative efficiency (or total welfare / economic surplus)?
Minimum wage laws act as a price floor on labor, which can potentially create this excess condition in the labor market if set above equilibrium.
What is unemployment (or a surplus of labor)?
This economic law states that as variable inputs are added to fixed inputs, the additional output produced per unit of input will eventually decrease.
What is the Law of Diminishing Marginal Returns?