Opportunity Cost
The value of the next best alternative you give up when making a decision.
Supply
The relationship between price and quantity sellers are willing to provide.
Demand
The relationship between price and quantity buyers are willing to purchase.
Market Equilibrium
The price and quantity where supply equals demand.
Elasticity
A measure of how sensitive quantity demanded or supplied is to changes in price.
Inelastic Demand
Quantity demanded changes little when price changes.
Elastic Demand
Quantity demanded changes significantly when price changes.
Marginal Cost (MC)
The additional cost of producing one more unit.
Marginal Revenue (MR)
The additional revenue generated from selling one more unit.
Profit Maximization Rule
A firm maximizes profit when MR = MC.
Consumer Surplus
The difference between what consumers are willing to pay and what they actually pay.
Producer Surplus
The difference between the price producers receive and the minimum they’d accept.
Deadweight Loss
Lost total surplus due to inefficient market outcomes (taxes)
Definition: Lost total surplus due to inefficient market outcomes (taxes
price controls
Perfect Competition
A market with many small firms selling identical products; firms are price takers.
Monopoly
A single seller controls the market; firm is a price maker.
Externality
A side effect of a transaction that affects third parties (positive or negative).
Budget Constraint
The combination of goods a consumer can afford given prices and income.
