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Definition
Refers to the degree of responsiveness a curve has with respect to price. If quantity changes easily when price changes, then the curve is elastic; if quantity doesn't change easily with changes in price, the curve is inelastic. The numerical equation to determine elasticity is:
Elasticity = (% Change in Quantity)/(% Change in Price) |
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Definition
| Refers to the degree of responsiveness a demand curve has with respect to price. If quantity drops a great deal when price goes up, then the curve is elastic; if quantity doesn't drop easily with increases in price, the curve is inelastic. |
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| Refers to the degree of responsiveness a supply curve has with respect to price. If quantity increases a great deal when price goes up, then the curve is elastic; if quantity doesn't increase easily with increases in price, the curve is inelastic. |
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Definition
| The price of a good or service at which quantity supplied is equal to quantity demanded. Also called the market-clearing price. |
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| Amount of goods or services sold at the equilibrium price. Because supply is equal to demand at this point, there is no surplus or shortage. |
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Definition
| Describes a supply or demand curve which is relatively unresponsive to changes in price. That is, the quantity supplied or demanded does not change easily when the price changes. A curve with an elasticity less than 1 is inelastic. |
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Definition
| A large group of buyers and sellers who are buying and selling the same good or service. |
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Definition
| Point at which quantity supplied and quantity demanded are equal, and prices are market-clearing prices, leaving no surplus or shortage. |
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Definition
| The immediate future, for which buyers and sellers make "temporary" decisions, such as shutting down production or increasing consumption, for the time being. |
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Definition
| The distant future, for which buyers and sellers make "permanent" decisions, such as exiting the market or permanently decreasing consumption. |
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Definition
| Situation in which the quantity supplied exceeds the quantity demanded for a good or service; in this situation, the price of a good is above equilibrium price. |
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Definition
| Describes a supply or demand curve which is perfectly responsive to changes in price. That is, the quantity supplied or demanded changes according to the same percentage as the change in price. A curve with an elasticity of 1 is unit elastic. |
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Term
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Definition
| Additional cost incurred from each additional unit of goods produced. |
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Definition
| Additional income derived from each additional unit of goods sold. |
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Definition
| Additional utility derived from each additional unit of goods acquired. |
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Definition
| A monopoly that exists because, for that specific good, the average cost curve is downward-sloping, making it difficult for new firms to enter the market. |
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Definition
| Maximum price set by the government on a specific good. Usually is set below market price, causing a shortage. |
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Definition
| Minimum price set by the government on a specific good. Usually is set above market price, causing a surplus. |
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Definition
| Actual amount that a firm makes from selling a good. It is equal to Total Revenue (TR) - Total Cost (TC). |
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Definition
| An approximate measure for levels of "happiness." |
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Definition
| Costs which do not vary with quantity produced that a firm has to pay in order to produce and sell its goods. |
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Definition
| All of the income a firm makes from selling its products. Is equal to price per unit times quantity sold, (P)x(Q). |
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Definition
A firm that satisfies the following conditions:
1.It is the only supplier in the market.
2.There is no close substitute to the output good.
3.There is no threat of competition. |
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Definition
| A firm with such extreme economies of scale that once it begins creating a certain level of output, it can produce more at a lower cost than any smaller competitor. Generally characterized by a declining average cost curve. |
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Definition
| Savings acquired through increases in quantity produced. Oftentimes, large firms in industries with high fixed costs can take advantage of savings that smaller firms cannot. |
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Definition
| An agent who takes prices as given. For instance, a firm who faces a perfectly flat demand curve has no choice but to sell at one price. This firm is a price taker. |
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Definition
A market operates under perfect competition if it satisfies the following conditions:
1.Numerous firms
2.Freedom of entry and exit
3.Homogeneous output
4.Perfect information |
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Term
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Definition
| The dollar amount of social surplus that goes unrealized as compared to the socially optimal solution. |
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Term
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Definition
| The opposite of a price taker; a price setter has the power to set prices. For instance, a firm who faces a downward sloping demand curve can choose price. |
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Term
| Law of Diminishing Returns |
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Definition
| Concept that the marginal revenue derived from additional units of labor decreases as quantities of labor increases. |
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Term
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Definition
| Describes the effects of changes in relative prices on consumption. According to the substitution effect, an increase in price of one good causes a buyer to buy more of the other, substituting good, since the first good has become relatively expensive with respect to the second good, and vice versa. The buyer substitutes consumption of the second good for consumption of the first |
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