Flashcard library · Business & Economics
Microeconomics: Key Terms
This flashcard deck provides a concise overview of essential microeconomic terminology and concepts. Perfect for students preparing for exams or needing a quick refresher, it covers fundamental topics from scarcity and opportunity cost to market structures and efficiency. Master these key terms to build a strong foundation in microeconomics.
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What is scarcity in economics?
Scarcity is the fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources.
Define opportunity cost.
Opportunity cost is the value of the next best alternative that must be forgone when making a choice.
What does the Production Possibilities Frontier (PPF) illustrate?
The PPF illustrates the maximum combinations of two goods that can be produced with given resources and technology, demonstrating concepts like scarcity, efficiency, and opportunity cost.
State the Law of Demand.
The Law of Demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa.
State the Law of Supply.
The Law of Supply states that, all else being equal, as the price of a good or service increases, the quantity supplied increases, and vice versa.
What is market equilibrium?
Market equilibrium is the state where the quantity demanded by consumers equals the quantity supplied by producers, resulting in a stable price and quantity.
Define Price Elasticity of Demand.
Price Elasticity of Demand measures the responsiveness of the quantity demanded of a good to a change in its price.
What is consumer surplus?
Consumer surplus is the difference between the maximum price consumers are willing to pay for a good and the actual price they pay.
What is producer surplus?
Producer surplus is the difference between the actual price producers receive for a good and the minimum price they would have been willing to accept.
Explain deadweight loss.
Deadweight loss is a net loss of total surplus (consumer and producer surplus) that results from an inefficient allocation of resources, often due to market distortions like taxes or price controls.
What is an externality?
An externality is a cost or benefit imposed on a third party who is not directly involved in the production or consumption of a good or service.
What are the two key characteristics of a pure public good?
A pure public good is non-rivalrous (one person's consumption does not diminish another's) and non-excludable (it is impossible to prevent individuals from consuming it).
Define a monopoly market structure.
A monopoly is a market structure characterized by a single seller of a unique product with no close substitutes, giving the firm significant market power.
Define an oligopoly market structure.
An oligopoly is a market structure characterized by a small number of large firms that dominate the market, leading to strategic interdependence among them.
What is marginal analysis in economics?
Marginal analysis is the examination of the additional benefits of an activity compared to the additional costs incurred by that same activity.