demand curve
graphical representation of a good a consumer (or a group of consumers) demands for any plausible price of that good
supply curve
graphical representation of the quantity of a good a producer (or a group of producers) supplies for any plausible price of that good
market equilibrium
a state in which market conditions have no inherent tendency to change, typically associated with producers supplying a quantity that satisfies all consumer demands
equilibrium price
a price at which the quantity of a good that consumers demand equals the quantity of the good that producers wish to supply
excess demand (shortage)
the extent to which the quantity of a good demanded exceeds the quantity of the good supplied
excess supply (surplus)
the extent to which the quantity of a good supplied exceeds the quantity of a good demanded
substitutes in consumption
if good A is a substitute for good B, an increase in the price of good A will lead to an increase in demand for good B
complements in consumption
if good A is a complement for good B, an increase in the price of good A will lead to a decrease in the demand for good B
normal goods
if good A is a normal good, then an increase in income will increase demand for good A
inferior goods
if good A is an inferior good, then an increase in income will decrease demand for good A
increase in demand
a market shock that results in the demand curve shifting to the right. it signifies that the quantity consumers demand increases at any given price observed in the market
decrease in supply
a market shock that results in the supply curve shifting to the left is referred to as a decrease in supply: it signifies that the quantity producers supply falls at any given price observed in the market
economic surplus
economic surplus is a measure of the economic welfare, derived as the difference between consumers' gross valuation of goods and the costs of providing those goods
consumer surplus
consumer surplus is a measure of consumers' economic welfare, derived as the difference between consumers' willingness to pay for goods and the actual amount they must pay for those goods
producer surplus
producer surplus is a measure of producers' economic welfare, derived as the difference between producers' revenue and the producers' costs of providing output
efficiency
efficiency is the state attained where resources are allocated in a way that maximizes economic surplus
deadweight loss
deadweight loss is a measure of inefficiency: it measures the difference between the greatest amount of economic surplus available and the amount of economic surplus that is realized
opportunity cost
the value of the best alternative use of that resource
PPF
shows the maximum quantity of one good that can be produced for any quantity of the other good produced
productive efficiency
a situation in which a good or service is produced at the lowest possible cost and occurs on points solely on the PPF
marginal opportunity cost
a measurement of the opportunity cost of the production of extra units of goods
increasing marginal opportunity cost
increasing the production of a good requires larger and larger decreases in the production of another good
comparative advantage
the ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors
absolute advantage
the ability of an individual, firm, or country to produce more of a good or service than competitors, using the same amount of resources
joint PPF
for any feasible joint output of one good, this shows the maximum quantity of the other good that can be produced jointly by all the productive agents in the economy
price ceiling
a price control or limit on how high a price is charged for a product, and equals the highest price at which a product can be sold
price floor
a price control or limit on how low a price is charged for a product, and equals the lowest price at which a product can be sold
per-unit sales tax
a tax defined as a fixed amount for each unit of a good or service sold
per-unit production subsidy
an amount of money given to firms for each unit of a good or service sold
rationing
the artificial restriction of raw materials, goods, or services
tax incidence
the division of a tax burden between consumers and producers
excess burden
the efficiency cost, or deadweight loss, associated with taxation