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Microeconomics
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the study of people and businesses within a single market. "Small economics"
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Interdependence
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mutually reliant on each other
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Circular flow of economic activity
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shows the interactions between buyers and sellers in the factor and resource markets.
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Factor market
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market in which the factors of production are purchased and consumed
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Product market
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market in which consumers purchase goods & services produced by business
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Law of supply
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an economic principle stating that as price rises, the quantity a seller is willing and able to sell increases.
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Supply
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the quantity a seller is willing and able to sell at each price
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Law of demand
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an economic principle stating that as the price of a good rises, the quantity of the good consumers are willing and able to buy decreases.
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Demand
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the quantity a consumer is willing and able to purchase at each price
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Determinants of supply
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non price "shifters" of supply
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Costs of productive resources
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When input prices rise, producers must spend more of their revenue to buy the inputs and therefore are forced to reduce their supply of the good.
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Government regulations
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If more taxes are imposed, most businesses will not be willing to supply as much as before.
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Number of sellers
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The supply of a particular good may increase or decrease because of change in the number of sellers in the market for a good.
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Producer expectations
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When sellers believe the price for a good will go lower in the future and they can increase their supply now, they will sell all they can before the price decreases.
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Technology
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Technological improvements in the tools or processes used to make goods and services increase the supply of those goods and services.
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Education
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A better-educated and better-trained workforce should be able to produce more goods in less time.
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Determinants of demand
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non price "shifters" of demand
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Related goods
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If the price of a complementary or related good changes, this could change the demand curve
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Income
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When a large number of consumers in the market for a good experience a change in income, the entire demand curve may shift.
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Consumer expectations
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When consumers believe a change in price will occur, they may hold off on purchasing the good until the price drops or buy more of the good before the price rises
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Preferences/tastes
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When a large number of consumers experience a change in preference toward or away from a good, the demand will change.
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Number of consumers
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The demand for a good may increase or decrease depending on the number of people in the market for the good.
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Equilibrium price (market clearing price)
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where consumers and producers agree on a price. Intersection of supply and demand.
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Price floor
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sets a minimum price for which a product can be sold. Often lead to a surplus of a good
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Minimum wage
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a price floor, the lowest legal price for labor
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Price ceiling
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sets a maximum price at which a good can be sold. A price ceiling often leads to a shortage
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Surplus
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quantity supplied is greater than the quantity demanded
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Shortage
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quantity demand is greater than quantity supplied
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Sole proprietorship
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business owned by a single owner
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Partnership
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type of business where risks & profits of a business are divided among owners
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Corporation
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type of business in which investors own shares of stock
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Stockholder
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one who has a piece of ownership in a corporation.
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Limited liability
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when responsibility for the debts of the business are restricted to the ownership stake (shares of stock) the business owner owns
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Monopoly
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market structure in which one company has control over production & prices of a commodity
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Oligopoly
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market structure in which a few large sellers(suppliers) dominate the industry
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Collusion
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when rival companies cooperate for their mutual benefit
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Monopolistic competition
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market structure characterized by a large number of buyers and sellers of products that are similar to one another but can be differentiated by brand, quality, etc
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Pure (perfect) competition
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market structure characterized by a large number of buyer and sellers of an identical product
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