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Economics 101
Microeconomics: Core Concepts
12 terms · by ineedtostudy · updated 4 hours ago
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Terms in this set
Opportunity cost
The value of the next-best alternative given up. The real cost of any choice.
Sunk cost
Money already spent and unrecoverable. Rationally irrelevant to what you do next.
Marginal cost
The cost of producing one more unit. Firms maximise profit where marginal cost equals marginal revenue.
Law of demand
As price rises, quantity demanded falls, all else equal.
Price elasticity of demand
Percentage change in quantity divided by percentage change in price. Above 1 is elastic, below 1 inelastic.
Substitute vs complement
Substitutes replace each other (tea and coffee); complements are consumed together (printers and ink).
Perfect competition
Many small firms, identical products, free entry, price takers. Long-run economic profit is zero.
Monopoly
One seller, no close substitutes, barriers to entry. The firm is a price maker.
Oligopoly
A few firms whose decisions depend on each other's. Often modelled with game theory.
Deadweight loss
The value of trades that would have benefited both sides but did not happen, because of a tax, price control or market power.
Public good
Non-rival and non-excludable, so markets under-supply it. National defence, street lighting.
Externality
A cost or benefit falling on someone outside the transaction. Pollution is negative; vaccination positive.