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demand
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a relation showing the quantities of a good that consumers are willing to buy at various prices per period
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law of demand
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the quantity of a good demanded per period relates inversely to its price, other things constant
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marginal utility
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the change in total utility derived from a one-unit change in consumption of a good
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law of diminishing marginal utility
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the more of a good a person consumes per period, the smaller the increase in total utility from consuming one more unit, other things constant
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demand curve
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a curve or line showing the quantities of a particular good demanded at various prices during a given time period, other things constant
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quantity demanded
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the amount demanded at a particular price
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individual demand
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the demand of an individual consumer
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market demand
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the sum of all the individual demands for a particular good or service
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elasticity of demand
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a measure of how consumers respond to price changes (% change in quantity demanded/ % change in price)
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total revenue
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price multiplied by the quantity demanded at that price
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movement along the demand curve
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a change in the quantity demanded of a good that is the result of a change in that good's price
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shift in a demand curve
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increase or decrease in demand resulting from a change in one of the determinants of demand other than the price of the good
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supply
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a relation showing the quantities of a good producers are willing and able to sell at various prices during a given period, other things constant
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law of supply
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the quantity supplied of a good rises when the price of the good rises
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supply curve
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a curve, or line, showing the quantities of a particular good supplied at various prices during a given time period, other things constant
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elasticity of supply
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a measure of the responsiveness of the quantity supplied to the price change
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movement along the supply curve
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change in quantity resulting from a change in the price of a good
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shift of a supply curve
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increase or decrease in supply resulting from a change in one of the determinants of supply other than the price of the good
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short run
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the period of time during which at least one of a firm's inputs is fixed
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long run
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the time period in which all inputs can be varied
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total product
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total output produced by the firm
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marginal product
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the change in total product that occurs when the use of a particular resource increases by one unit, all other resources constant
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law of diminishing returns
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As more of a variable resource is added to a given amount of fixed resources, marginal product eventually declines and could become negative.
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fixed cost
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any production cost that is independent of the firm's rate of output
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variable cost
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any production cost that changes as the rate of output changes
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total cost
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the sum of fixed and variable costs
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marginal cost
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change in total cost / change in quantity
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marginal revenue
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the change in total revenue from an additional unit sold
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competitive firm's supply curv
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rising portion of a firm's marginal cost curve at or above the price that will allow the firm to cover variable cost
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long-run average cost curve
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a curve that indicates the lowest average cost of production at each rate of output when the size, or scale, of the firm varies; also called the planning curve
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economies of scale
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forces that reduce a firm's average cost as the firm's size, or scale, increases in the long run
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Equilibrium
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the quantity consumers are willing and able to buy equals the quantity producers are willing and able to sell
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surplus
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A situation in which quantity supplied is greater than quantity demanded
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shortage
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A situation in which quantity demanded is greater than quantity supplied
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transaction cost
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The cost of time and information needed to carry out market exchange
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increase in demand
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consumers are willing and able to buy more of the product at each price (right shift)
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decrease in demand
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consumers are willing and able to buy less of the product at each price (left shift)
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increase in supply
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producers are willing and able to sell more of the product at each price (right shift)
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decrease in supply
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producers are willing and able to sell less of the product at each price (left shift)
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productive efficiency
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occurs when a firm produces at the lowest possible cost per unit
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allocative efficiency
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occurs when a firm produces the output most valued by consumers
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Disequilibrium
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a mismatch between quantity demanded and quantity supplied as the market seeks equilibrium; usually temporary, except when government intervenes to set the price
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price floor
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a minimum price for a good or service
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price ceiling
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A legal maximum on the price at which a good can be sold
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consumer surplus
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the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually do pay (i.e. the market price).
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market structures
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important features of a market, including the number of buyers and sellers, product uniformity across sellers, ease of entering the market, and forms of competition
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perfect competition
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a market structure with many fully informed buyers and sellers of a standardized product and no obstacles to entry or exit of firms in the long run
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commodity
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a product that is identical across sellers, such as a bushel of wheat
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monoploy
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a sole supplier of a product with no close substitutes
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market power
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the ability of a firm to raise its price without losing all its customers to rival firms
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barriers to entry
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restrictions on the entry of new firms into an industry
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monopolistic competition
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a market structure with low entry barriers and many firms selling products differentiated enough that each firm's demand curve slopes downward
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Oligopoly
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a market structure with a small number of firms whose behavior is interdependent
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cartel
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a group of firms that agree to act as a single monopolist to increase the market price and maximize the group's profits
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antitrust activity
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government efforts aimed at preventing monopoly and promoting competition in markets where competition is desirable
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merger
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Combination of two or more companies into a single firm
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deregualtion
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The reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry.
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