Economics: Consumer Behavior and Firm Production

Utility: Measure of satisfaction or pleasure derived from consumption.
- Total Utility: Overall satisfaction from consumption.
- Marginal Utility: Additional satisfaction from consuming one more unit.
Budget Constraint: Limit on consumer spending based on income and prices.
Indifference Curves: Graphical representation of different bundles of goods providing the same utility.
Substitution Effect: Change in quantity demanded due to a change in the price of a good, making it more or less attractive compared to other goods.
Income Effect: Change in quantity demanded resulting from a change in consumer's purchasing power due to a price change.

Production Function: Relationship between inputs (labor, capital) and output produced.
Short Run vs. Long Run:
- Short Run: At least one input is fixed.
- Long Run: All inputs can be varied.
Law of Diminishing Returns: Adding more of one input while keeping others constant will eventually yield lower per-unit returns.
Costs:
- Fixed Costs: Do not change with output level.
- Variable Costs: Change with the level of output.
- Total Cost: Sum of fixed and variable costs.
- Average and Marginal Costs: Average cost per unit and the cost of producing one additional unit, respectively.

Demand and Supply:
- Demand: Quantity of a good consumers are willing to buy at various prices.
- Supply: Quantity of a good producers are willing to sell at various prices.
Equilibrium Price: Price at which quantity demanded equals quantity supplied.
Shifts in Demand and Supply:
- Demand Shift: Caused by changes in consumer preferences, income, price of related goods.
- Supply Shift: Caused by changes in production costs, technology, or number of sellers.
Elasticity:
- Price Elasticity of Demand: Responsiveness of quantity demanded to a price change.
- Price Elasticity of Supply: Responsiveness of quantity supplied to a price change.

Perfect Competition:
- Many firms, identical products, free entry and exit.
- Price takers, no single firm can influence market price.
Monopoly:
- Single seller, unique product, high barriers to entry.
- Price maker, can influence market price.
Oligopoly:
- Few firms dominate the market, products may be identical or differentiated.
- Interdependent pricing and output decisions.
Monopolistic Competition:
- Many firms, differentiated products, some market power.
- Free entry and exit, firms compete on price and non-price factors.

Efficiency:
- Allocative Efficiency: Resources allocated to maximize total benefit.
- Productive Efficiency: Goods produced at lowest cost.
Consumer Surplus: Difference between what consumers are willing to pay and what they actually pay.
Producer Surplus: Difference between what producers receive and their minimum acceptable price.
Market Failures: Situations where market outcomes are inefficient due to externalities, public goods, or market power.
Government Intervention: May be necessary to correct market failures and promote social welfare, e.g., taxes, subsidies, regulations.

Utility measures satisfaction from consumption, divided into Total Utility (overall satisfaction) and Marginal Utility (additional satisfaction from consuming one more unit).
Budget Constraint limits consumer spending based on available income and prevailing prices of goods.
Indifference Curves illustrate combinations of goods offering equal utility to consumers, aiding in understanding consumer preferences.
Substitution Effect occurs when a price change influences the attractiveness of a good relative to others, altering quantity demanded.
Income Effect reflects changes in quantity demanded due to fluctuations in consumer purchasing power caused by price adjustments.

Production Function expresses the relationship between input factors (labor, capital) and output generated.
Short Run is characterized by at least one fixed input, whereas in the Long Run, all inputs are flexible.
Law of Diminishing Returns states that increasing one input while others remain constant will eventually result in smaller increases in output.
Costs are categorized into Fixed Costs (unchanging with output levels), Variable Costs (varying with output levels), Total Cost (sum of fixed and variable costs), along with Average Cost (cost per unit) and Marginal Cost (cost of producing one additional unit).

Demand represents how much quantity consumers are willing to purchase at different price points, while Supply indicates how much quantity producers are willing to sell at those prices.
Equilibrium Price is established when the quantity demanded equals the quantity supplied, balancing the market.
Shifts in Demand and Supply may occur due to changes in consumer preferences, income, or related goods for demand shifts, and production costs, technology, or seller numbers for supply shifts.
Elasticity measures responsiveness, with Price Elasticity of Demand reflecting how quantity demanded changes with price variations and Price Elasticity of Supply assessing how quantity supplied reacts to price changes.

Perfect Competition features many firms producing identical products with no single entity affecting market prices. Free market entry and exit characterize this structure.
Monopoly includes one seller offering a unique product, facing high entry barriers, and having the power to set prices.
Oligopoly is dominated by a few firms, with interdependent decisions on pricing and output, and can either feature identical or differentiated products.
Monopolistic Competition combines many firms with differentiated products, allowing some degree of market power, while maintaining free entry and exit with competition based on price and non-price factors.

Efficiency encompasses Allocative Efficiency (optimum resource allocation for maximum total benefit) and Productive Efficiency (production at the lowest possible cost).
Consumer Surplus is the difference between what consumers are willing to pay versus what they actually pay, while Producer Surplus represents the difference between what producers receive and their minimum acceptable price.
Market Failures arise from inefficiencies due to externalities, public goods, or concentrated market power.
Government Intervention may be essential to rectify market failures and enhance social welfare, utilizing tools such as taxes, subsidies, and regulations.