Economics Class: Opportunity Cost and Demand

The value of the next best alternative forgone when making a choice. It considers the benefits you miss out on by choosing one option over another. For example, if you spend your evening studying instead of working, the opportunity cost of studying is the money you would have earned working.

A graph showing the maximum combinations of two goods that an economy can produce, given its available resources and technology. It assumes that all resources are fully employed.

The ability to produce a good or service at a lower opportunity cost than another producer. Specialization and trade can create a situation where both parties are better off, even if one party is better at producing everything.

A situation where one producer can produce more of a good or service than another producer using the same amount of resources.

A decrease in consumer demand for a product due to negative perceptions, leading to a leftward shift in the demand curve, resulting in a lower equilibrium price and quantity.

An increase in the supply of a good due to a decrease in production costs, leading to a rightward shift in the supply curve, resulting in a lower equilibrium price and a higher equilibrium quantity.

A factor that causes a change in the quantity demanded or supplied at every price level, shifting the entire demand or supply curve.

A decrease in the price of an input used in the production of a good, leading to a decrease in production costs and an increase in supply.

The point where the supply and demand curves intersect, representing the equilibrium price and quantity for a product.

The amount of a good that consumers are willing and able to buy at a given price.

The amount of a good that producers are willing and able to sell at a given price.

The price at which the quantity supplied and the quantity demanded are equal.

A measure of how responsive the quantity demanded of a good is to changes in its price.

If the price elasticity of demand is greater than 1, demand is considered elastic. This means that a change in price will lead to a proportionally larger change in the quantity demanded.

If the price elasticity of demand is less than 1, demand is considered inelastic. This means that a change in price will lead to a proportionally smaller change in the quantity demanded.

If the price elasticity of demand is equal to 1, demand is considered unit-elastic. This means that a change in price will lead to an equal proportional change in the quantity demanded.

If the price elasticity of demand is infinite, demand is considered perfectly elastic. This means that any change in price will lead to an infinite change in the quantity demanded.

If the price elasticity of demand is 0, demand is considered perfectly inelastic. This means that a change in price will not lead to any change in the quantity demanded.

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. A higher price elasticity means that there is a greater responsiveness in quantity demanded to changes in price.

If the price elasticity of demand is greater than 1, then a decrease in price will lead to an increase in total revenue. If the price elasticity of demand is less than 1, then a decrease in price will lead to a decrease in total revenue.

In perfect competition, firms maximize profits where price equals marginal cost (P = MC). This is because firms are price takers and can sell as much as they want at the market price. In a monopoly, profit maximization occurs where marginal revenue equals marginal cost (MR = MC). This is because monopolies have market power and can set their own prices.

In monopolistic competition, profit maximization also occurs where marginal revenue equals marginal cost (MR = MC). However, unlike perfect competition, monopolistically competitive firms face a downward-sloping demand curve, meaning they can influence price to some extent.

The point where a firm's marginal revenue (MR) equals its marginal cost (MC).

A firm's total revenue divided by the quantity of output produced.

Measures the change in total revenue resulting from selling one more unit.

A firm's total cost divided by the quantity of output produced.

The cost of producing one more unit of output.

A monopoly produces more output and charges a lower price than a monopolistic competition.

A firm's total revenue (TR) minus its total cost (TC).

The difference between the price consumers are willing to pay and the price they actually pay, represented by the area between the demand curve and the price line.

The loss in total welfare that occurs when the market is not able to reach its efficient equilibrium due to a price ceiling, represented by the area between the demand and supply curves.

A maximum legal price that can be charged for a good or service. It is set below the equilibrium price, leading to a shortage.

The area under the demand curve and above the price line, representing the total value consumers receive from consuming a product.

The area above the supply curve and below the price line, representing the total profit producers earn from selling a product.

Points on the demand curve that are not realized due to the price ceiling, resulting in a decrease in the quantity traded.

Points on the supply curve that are not realized due to the price ceiling, resulting in a decrease in the quantity traded.

This occurs when the government intervenes in the market with price regulations (like a price ceiling) that prevent the market from reaching its efficient equilibrium.

The loss of economic welfare that occurs when a monopolist produces less than the socially efficient quantity of a good.

The price at which a monopolist sells its product, determined by the intersection of the marginal revenue and marginal cost curves.

The quantity of a good that a monopolist chooses to produce, which is less than the socially efficient quantity.

The curve that shows the relationship between the price of a good and the quantity demanded by consumers.

The curve that shows the relationship between the price of a good and the quantity a monopolist is willing to supply.

The additional revenue earned by a monopolist from selling one more unit of output when taking into account that the price must be lowered to sell an additional unit (as in a monopoly, the price must be lowered to sell an additional unit).