Market Dynamics
The point where quantity supplied equals quantity demanded.
What is Market Equilibrium?
A legal maximum on the price at which a good can be sold.
What is a Price Ceiling?
The period of time in which at least one input is fixed.
What is the Short Run?
Total Revenue minus Total Cost (TR - TC)
What is Profit?
The triangular area below the Demand curve and above the Price line.
What is Consumer Surplus?
The difference between the highest price a consumer is willing to pay and the actual price paid.
What is Consumer Surplus?
A tax on goods produced abroad and sold domestically.
What is a Tariff?
Costs that do not vary with the quantity of output produced.
What are Fixed Costs?
The "Golden Rule" of profit maximization found where Marginal Revenue equals Marginal Cost (MR=MC).
What is the Profit-Maximizing Rule?
The triangular area above the Supply curve and below the Price line.
What is Producer Surplus?
A situation where quantity supplied is greater than quantity demanded.
What is a Surplus?
A limit on the quantity of a good that can be produced abroad and sold domestically.
What is a Quota?
The change in total output resulting from using one more unit of input.
What is Marginal Product?
A market structure characterized by many buyers and sellers and identical products.
What is Perfect Competition?
A horizontal line drawn below the equilibrium point causing Qd > Qs.
What is a Shortage (or Binding Price Ceiling)?
The difference between the actual price a producer receives and the minimum price they would accept.
What is Producer Surplus?
The loss of economic efficiency (area on a graph) that can occur when the equilibrium for a good or service is not achieved.
What is Deadweight Loss?
Calculated by dividing Total Cost by the Quantity of output (TC/Q).
What is Average Total Cost (ATC)?
A firm that must accept the market price because it cannot influence the market price on its own.
What is a Price Taker?
The vertical distance between the ATC curve and the AVC curve.
What is Average Fixed Cost (AFC)?
This represents the total value created in a market (the sum of Consumer and Producer Surplus).
What is Total Surplus (or Welfare)?
Government policies that alter consumer behavior and influence incentives.
What is Government Intervention?
A curve that shows the lowest cost at which a firm is able to produce a given quantity of output in the long run.
What is the Long-Run Average Total Cost Curve (LRATC)
In the long run, perfectly competitive firms earn this amount of economic profit.
What is Zero?
A horizontal Demand curve at the market price (Perfectly Elastic).
What is the Demand Curve for a Perfectly Competitive Firm?