Basic Concepts in Microeconomics

Think that in maths that always means you have to use derivatives.

Mu = (%change Total Utility) / (%change Quantity)

A curve that shows consumption bundles that give the consumer the same level of utility.
A way to represent preferences graphically.

The rate at which a consumer would be willing to trade off one good for another.
MRS measures slope of Indifference Curve and it is also called "marginal willingness to pay".

unlimited wants, limited resources

whatever must be given up to obtain some item

the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors

the producer that can produce the most output and/or requires the least inputs

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

inverse relationship between price and quantity demanded; one goes up the other goes down.

producers offer more of a good as its price increases and less as its price falls

two goods for which an increase in the price of one leads to an increase in the demand for the other

two goods for which an increase in the price of one leads to a decrease in the demand for the other

a good that consumers demand more of when their incomes increase

a good that consumers demand less of when their incomes increase

shows how quantity demanded changes when there is a change in price

% change in quantity demanded / % change in price

quantity is sensitive to a change in price;
when price changes, quantity will change by more.
if price increases, quantity demanded decreases by more than the price and when price decreases, quantity increases by more than the price.
Elasticity coefficient > 1
Good that are elastic: luxury goods, substitute goods.

quantity demanded is insensitive to a change in price.
Elasticity coefficient < 1
If price increases, quantity demanded will fall by less than change in price.
If price decreases, quantity demanded will increase just a little bit, but less than decrease in price.
Goods: necessities, vicious goods like cigarettes, goods with very few substitutes

a horizontal line reflecting a situation in which any price increase reduces quantity demanded to zero; the elasticity has an absolute value of infinity

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero

A change in price leads to a smaller than proportional change in the quantity demanded.
0 < Elasticity coefficient < 1

A change in price leads to a more than proportional change in the quantity demanded.
Elasticity coefficient > 1

demand is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value

a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good

a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income

the amount a buyer is willing to pay minus the amount the buyer actually pays

the amount a seller is paid for a good minus the seller's cost

a regulation that makes it illegal to charge a price higher than a specified level

A legal minimum on the price at which a good can be sold

the fall in total surplus that results from a market distortion, such as a tax/price ceiling/price floor as it does not maximize producer and consumer surplus, so total surplus

a tax on the production, sale, or consumption of goods produced within a country

the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time

principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease

The additional output produced when 1 additional unit of a resource is employed whilst holding the other resources fixed.

Costs that do not vary with the quantity of output produced

costs that vary with the quantity of output produced

fixed costs + variable costs

a form of market structure in which there are many sellers in a market and none is large enough to dictate the price of a product
other characteristics:
- identical products;
- low barriers to entry, low costs to enter and exit industry;
- firms are 'price takers', they have no control over price

the change in total revenue from an additional unit sold

the cost of producing one more unit of a good
The portion of the MC curve that is above the ATC curve is also the short-run supply (curve). If supply falls below ATC, you shut down and don't produce anything.

All firms maximize profit by producing where MR = MC

equal to total revenue minus both explicit and implicit costs (opportunity costs)

total revenues minus total explicit costs