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microeconomics
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the branch of economics that studies the specific choices made by consumers and producers.
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theories and models
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explanations of how things work that help us understand and predict how and why economic entities behave as they do.
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empirical
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using data analysis and experiments to explore phenomena.
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supply
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the combined amount of a good that all producers in a market are willing to sell.
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demand
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the combined amount of a good that all consumers are willing to buy.
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commodities
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products traded in markets in which consumers view different varieties of the good as essentially interchangeable. ex. wheat, soybeans, crude oil, nails, and gold.
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substitute
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a good that can be used in place of another good.
ex. the lower the prices of onions and peppers relative to price of tomatoes, the fewer tomatoes consumers will want to buy.
ex. the lower the prices of onions and peppers relative to price of tomatoes, the fewer tomatoes consumers will want to buy.
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compliment
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a good that is purchased and used in combination with another good.
ex. if the price of basil falls, consumers are likely to want to buy more tomatoes as a result.
ex. if the price of basil falls, consumers are likely to want to buy more tomatoes as a result.
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demand curve
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the relationship between the quantity of a good that consumers demand and the good's price, holding all other factors constant.
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inverse demand curve
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a demand curve written in the form of a price as a function of quantity demanded.
ex. Q = 1,000 - 200P
ex. Q = 1,000 - 200P
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demand choke price
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the price at which no consumer is willing to buy a good and quantity demanded is zero; the vertical intercept of the inverse demand curve.
(when Q equals 0)
(when Q equals 0)
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change in quantity demanded
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a MOVEMENT along the demand curve that occurs as a result in a change in a good's price.
(price is the only factor that directly influences supply and demand movement)
(price is the only factor that directly influences supply and demand movement)
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change in demand
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a SHIFT of the entire demand curve caused by a change in a determinant of demand other than the good's own price (factors that influence demand: # of consumers, consumer income or wealth, consumer taste, price of related goods)
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production technology
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the processes used to make, distribute, and sell a good.
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supply curve
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the relationship between the quantity supplied of a good and the good's price, holding all other factors constant.
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inverse supply curve
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a supply curve written in the form of price as a function of quantity supplied.
P = 0.005Q + 1
P = 0.005Q + 1
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supply choke price
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the price at which no firm is willing to produce a good quantity supplied is zero; the vertical intercept of the inverse supply curve.
(when Q equals 0)
(when Q equals 0)
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change in quantity supplied
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a MOVEMENT along the supply curve that occurs as a result of a change in the good's price. (price is the only factor that directly influences supply and demand movement)
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change in supply
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a SHIFT of the entire supply curve caused by a change in a determinant of supply other than the good's own price.
(factors that influence supply: cost, # of sellers, sellers' outside option, technology)
(factors that influence supply: cost, # of sellers, sellers' outside option, technology)
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market equilibrium
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the point at which the quantity demanded by consumers is exactly equals the quantity supplied by producers.
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equilibrium price
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the only price at which quantity supplied equals quantity demanded. (Qd = Qs)
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surplus
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the amount by which quantity supplied exceeds quantity demanded when market price is higher than the equilibrium price.
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shortage
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the amount by which quantity demanded exceeds quantity supplied when market price is lower than the equilibrium price.
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elasticity
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the ratio of the percentage change in one value to the percentage change in another.
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price elasticity of demand
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the percentage change in quantity demanded resulting from a 1% change in price.
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elastic
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a price elasticity with an absolute value greater than 1.
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inelastic
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a price elasticity with an absolute value less than 1.
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unit elastic
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a price elasticity with an absolute value equal to 1.
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perfectly inelastic
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a price elasticity that is equal to zero; there is no change in quantity demanded or supplied for any change in price.
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perfectly elastic
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a price elasticity that is infinite; any change in price leads to an infinite change in quantity demanded or supplied.
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income elasticity of demand
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the percentage change in quantity demanded associated with a 1% change in consumer income.
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inferior good
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a good for which quantity demanded decreases when income rises.
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normal good
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a good for which quantity demanded increases when income rises.
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luxury good
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a good with an income elasticity greater than 1.
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cross-price elasticity of demand
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the percentage change in the quantity demanded of one good associated with a 1% change in the price of another good.
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own-price elasticities of demand
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the percentage change in quantity demanded for a good resulting from a percentage change in the price of that good.
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consumer surplus
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the difference between the amount consumers would be willing to pay for a good or service and the amount they actually have to pay.
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producer surplus
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the difference between the price at which producers are willing to sell their good or service and the price they actually receive.
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price ceiling
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a price regulation that sets the highest price that can be paid legally for a good or service.
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transfer
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surplus that moves from producer to consumer, or vice versa, as a result of a price regulation.
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deadweight loss (DWL)
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the reduction in total surplus that occurs as a result of a market inefficiency.
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nonbinding price ceiling
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a price ceiling set at a level above equilibrium price.
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price floor (or price support)
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a price regulation that sets the lowest price that can be paid legally for a good or service.
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nonbonding price floor
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a price floor set at a level below equilibrium price.
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quota
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a regulation that sets the quantity of a good or service provided.
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crowding out
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a reduction in private economic activity created by greater government presence in a market.
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tax incidence
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who actually pays a tax.
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subsidy
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a payment by the government to a buyer or seller of a good or service.
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