MICROECONOMICS

competitive market

government intervention

tax

subsidy

externalities (failure of the market to achieve a social optimum where MSB = MSC)

positive externalities of production

elasticity

PED (price elasticity of demand)

PES (price elasticity of supply)

XED (cross price elasticity of demand)

YED (income elasticity of demand)

price floor

price ceiling

positive externalities of consumption

negative externalities of consumption

negative externalities of production

supply

demand

market equilibrium

market failure

public goods

common access resource

theory of firm

long run

short run

Qd - price ; negative casual relationship

Qs - price ; positive casual relationship

non price determinants

non price determinants

income

preference/taste

substitutues/complements

normal goods

inferior goods

demographic change

Qd = a – bP

changes in a, there will be a shift of the demand curve.

change in “b” affects the steepness of the demand curve.

cost of production

technology

number of firms in the market

tax/subsidy

Qs = c + dP

if the “c” term changes, there will be a shift of the supply curve.

change in “d” affects the steepness of the supply curve.

excess demand

excess supply

where S and D intersect

price mechanism

signalling function

incentive function

These two functions result in a reallocation of resources when prices change as a result of a change in demand or supply conditions.

market efficiency

consumer surplus

producer surplus

allocative efficiency

the best allocation of resources from society’s point of view is at competitive market equilibrium, where social surplus (consumer surplus + producer surplus) is maximized

responsiveness of quantity demanded to a change in price

determinants

number and closeness of substitutes

degree of necesity

time to respond

proportion of income spent

determinants

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responsiveness of demand for one good (and hence a shifting demand curve) to a change in the price of another good.

substitutes

complementary goods

negative

positive

absolute value of XED depends on the closeness of the relationship between two goods

responsiveness of demand (and hence a shifting demand curve) to a change in income.

normal goods

inferior goods

positive

negative

relatively low YED for primary products

relatively higher YED for manufactured products and an even higher YED for services.

responsiveness of quantity supplied to a change in price along a given supply curve.

time

mobility of factors of production

unused capacity

ability to store stocks

specific tax

ad volurem tax

consequence

consumer

producer

government

why

consequence

why

government

consumer

producer

failure of the market to achieve allocative efficiency, resulting in an over-allocation of resources or an under-allocation of resources

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goals of firm

profit maximization

revenue maximization

growth maximization

satisficing / CSR