Basic Concepts
The price of the next best thing when tradeoffs are made
The market is in this state when Qd = Qs
Equilibrium
In a perfectly competitive market, if a firm falls below AVC in the short run, what should it do?
Shut down
A firm that controls the entire market, particularly where there is a high barrier to entry
Monopoly
People who benefit from public goods without paying for them
Free Riders
This is created by unlimited wants and needs
Scarcity
A hamburger bun has this economic relationship to ground beef
Complement
FC + VC =
TC
A market structure with few firms that are interdependent
Oligopoly
Give an example of a government intervention into a market
Price ceiling/floor OR per-unit or lump-sum tax OR subsidy
Model used to show opportunity cost and productive efficiency
Production Possibilities Curve (or Frontier)
How sensitive demand is to changes in price
Elasticity (of demand)
Economic profit, which takes into consideration opportunity cost, is maximized at what point?
Where MR = MC
In a factor market, businesses are the consumers - who are the sellers?
Workers
Income inequality is graphically represented by this
Lorenz Curve
This process is used to calculate optimal consumption with limited income
Marginal Analysis
The difference between the price one is willing to pay (above equilibrium) and what one actually pays
Consumer Surplus
If one is seeking allocative efficiency, than price should equal this
MC (Marginal Cost)
A perfectly competitive labor market has this defined by the market
Wages
Social Efficiency Point is where the MSB (marginal Social Benefit) equals this
MSC (Marginal Social Cost)
This concept tells us how countries can increase productivity by specializing and trading
Comparative Advantage
Give an example of a price control that can lead to disequilibrium
Price floors or Price ceilings
If one is seeking productive efficiency, price should be set at what point?
The ATC or above
In game theory, this exists when the payoff to a particular action is always higher regardless of the other's choice
Dominant Strategy
This exists when the production or consumption of a product results in a cost to a third party
Negative Externality