Microeconomics Unit 1-2

allocative efficiency

when the last unit produced costs the same as the benefit recieved by consumers, the price that consumer's are willing to pay is equivalent to the marginal utility that they get.

Factors of productions

resources of land, labor, capital, and entrepreneurship used to produce goods and services

tax incidence

the actual division of the burden of a tax between buyers and sellers in a market

Opportunity cost

the cost of the next best use of time and money when choosing to do one thing or another

producer surplus

the difference between the lowest price a firm would be willing to accept and the price it actually receives

product market

the market in which households purchase the goods and services that firms produce

deadweight loss

the total loss of producer and consumer surplus from underproduction or overproduction

Scarcity

when people want more of something than is readily available. Below the equilibrium.

calculate elasticity

Price elasticity of demand = Percentage change in Qd/Percentage change in price...Greater the number the greater the elasticity. Elasticity greater than one is inelastic

law of diminishing marginal returns

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

complementary good

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

marginal utility calculation

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law of increasing relative costs

The observation that the opportunity cost of additional unity of a good generally increases as society attempts to produce more of hat good. This accounts for the bowed out shape of the production possibilities cost.

change in quantity supplied vs change in supply

a change in price causes a change in quantity supplied (a movement along a single supply curve); a change in supply shifts the entire supply curve

income effect

a change in the quantity demanded of a product that results from the change in real income (purchasing power) caused by a change in the product's price.

Inferior good

a good for which the demand increases as income falls and decreases as income rises.

Normal good

a good for which the demand increases as income rises and decreases as income falls

price floor

a legal minimum on the price at which a good can be sold(above equilibrium)

resource market

a market in which households sell and firms buy resources or the services of resources

price ceiling

a maximum price that can be legally charged for a good or service(below equilibrium)

productive efficiency

a situation in which a good or service is produced at the lowest possible cost

shortage

a situation in which quantity demanded is greater than quantity supplied(below equilibrium)

surplus

a situation in which quantity supplied is greater than quantity demanded(above equilibrium)

marginal analysis

analysis that involves comparing marginal benefits and marginal costs, focuses on the changes in total revenue and total cost from selling one more unit to find the most profitable price and quantity

substitute good

goods that can be used to replace the purchase of similar goods when prices rise EX: Chips instead of cheesecake

change in quantity demanded vs change in demand

movement along the demand curve as a result of the change in a products price vs. shift in the demand curve

"no such thing as a free lunch"

whatever goods and services are provided, they must be paid for by someone

substitution effect

when consumers react to an increase in a good's price by consuming less of that good and more of other goods

unit elastic

when there is a change in the price say from 5 $ to 6 $ , there will be a change in quantity demanded from 6 to 5 . That is when the price changes by one unit, the quantity demanded also changes by 1 unit. revenue remains unchanged.

consumer surplus

The difference between the maximum amount a person is willing to pay for a good and its current market price.

trade-offs

Alternatives that must be given up when one is chosen rather than another

law of diminishing marginal utility

As the quantity of a good consumed increases the extra satisfaction gained decreases. EX: first hotdog taste great second one not so much

inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product(vertical)

elastic demand

A situation in which consumer demand is sensitive to changes in price(horizontal)