sparknotes
Equilibrium
Terms
Aggregate Demand
-
The combined demand of all buyers in a market.
Aggregate Supply
-
The combined supply of all sellers in a market.
Average Cost
-
Average cost incurred per unit of goods produced. Is equal to Total
Cost divided by quantity, TC/q.
Average Fixed Cost
-
Average amount of fixed costs incurred per unit of goods produced.
Is equal to Total Fixed Costs divided by quantity sold, TFC/q.
Average Revenue
-
Average amount of income generated per unit of goods sold. Is equal to
Total Revenue divided by quantity sold, TR/q.
Average Variable Cost
-
Average amount of variable costs incurred per unit of goods
produced. Is equal to Total Variable Costs divided by quantity sold, TVC/q.
Buyer
-
Someone who purchases goods and services from a seller for
money.
Competition
-
In a market economy, competition occurs between large numbers of
buyers and sellers who vie for the opportunity to buy or sell goods
and services. The competition among buyers means that prices will never
fall very low, and the competition among sellers means that prices will never
rise very high. This is only true if there are so many buyers and sellers that
no single one of them has a significant impact on the market equilibrium.
Demand
-
Demand refers to the amount of goods and services that buyers
are willing to purchase. Typically, demand decreases with increases in
price, this trend can be graphically represented with a demand curve.
Demand can be affected by changes in income, changes in price, and changes in
relative price.
Demand Curve
-
A demand curve is the graphical representation of the relationship
between quantities of goods and services which buyers are willing to
purchase and the price of those goods and services.
Equilibrium Price
-
The price of a good or service at which quantity supplied is
equal to quantity demanded. Also called the market-clearing price.
Equilibrium Quantity
-
Amount of goods or services sold at the equilibrium price.
Because supply is equal to demand at this point, there is no
surplus or shortage.
Fixed Costs
-
Costs which vary with quantity produced that a firm has to pay in
order to produce and sell its goods.
Firm
-
Unit of sellers in microeconomics. Because it is seen as one
selling unit in microeconomics, a firm will make coordinated efforts to
maximize its profit through sales of its goods and services. The
combined actions and preferences of all firms in a market will
determine the appearance and behavior of the supply curve.
Goods and Services
-
Products or work that are bought and sold. In a market economy,
competition among buyers and sellers sets the market
equilibrium, determining the price and the quantity sold.
Horizontal addition
-
The process of adding together all quantities demanded at each price
level to find aggregate demand
Household
-
Unit of buyers in microeconomics. Because it is seen as one buying unit in
microeconomics, a household will make coordinated efforts to maximize its
utility through its choices of goods and services. The combined actions
and preferences of all households in a market will determine the
appearance and behavior of the demand curve.
Long Run
-
The distant future, for which buyers and sellers make
"permanent" decisions, such as exiting the market or permanently decreasing
consumption.
Marginal Cost
-
Additional cost incurred from each additional unit of goods
produced.
Marginal Revenue
-
Additional income derived from each additional unit of goods sold.
Marginal Utility
-
Additional utility derived from each additional unit of goods
acquired.
Market
-
A large group of buyers and sellers who are buying and
selling the
same good or service.
Market Economy
-
An economy in which the prices and distribution of goods and
services are determined by the interaction of large numbers of buyers and
sellers, none of whom have significant individual impact on prices or
quantities.
Market Equilibrium
-
Point at which quantity supplied and quantity demanded are equal, and
prices are market-clearing prices, leaving no surplus or shortage.
Market-Clearing Price
-
The price of a good or service at which quantity supplied is
equal to
quantity demanded. Also called the equilibrium price.
Monopoly
-
A firm that is the only seller of a good, with no
competition.
Natural Monopoly
-
A monopoly that exists because, for that specific good, the
average cost curve is downward-sloping, making it difficult for new firms to
enter the market.
Optimization
-
To maximize utility by making the most effective use of available
resources, whether they be money, goods, or other factors.
Price Ceiling
-
Maximum price set by the government on a specific good. Usually is set
below market price, causing a shortage.
Price Floor
-
Minimum price set by the government on a specific good. Usually is set
above market price, causing a surplus.
Price-taker
-
Concept that in a competitive market, buyers and sellers
cannot decide what price they will accept, since they have no significant
influence on the much larger market. Instead, they have to accept the market
price and make their decisions accordingly.
Profit
-
Actual amount that a firm makes from selling a good. It is equal to
Total Revenue (TR) - Total Cost (TC).
Seller
-
Someone who sells goods and services to a buyer for money.
Shortage
-
Situation in which the quantity demanded exceeds the quantity supplied
for a good or service; price is below equilibrium price.
Short Run
-
The immediate future, for which buyers and sellers make
"temporary" decisions, such as shutting down production or increasing
consumption, for the time being.
Supply
-
Supply refers to the amount of goods and services that sellers
are willing to sell. Typically, supply increases with increases in
price, this trend can be graphically represented with a supply curve.
Supply Curve
-
A supply curve is the graphical representation of the relationship
between quantities of goods and services that sellers are willing to
sell and the price of those goods and services.
Surplus
-
Situation in which the quantity supplied exceeds the quantity demanded
for a good or service; price is above equilibrium price.
Total Cost
-
All of the money a firm has to pay in order to be able to sell its
products. Includes total variable costs and total fixed costs.
Total Fixed Costs
-
All costs which do not vary with quantity produced that a firm has
to pay in order to produce and sell its goods. Example: rent.
Total Revenue
-
All of the income a firm makes from selling its products. Is equal
to price per unit times quantity sold, (P)x(Q).
Total Variable Costs
-
All costs which vary with quantity produced that a firm has to pay
in order to produce and sell its goods. Example: materials used in
production.
Utility
-
An approximate measure for levels of "happiness."
Variable Costs
-
Costs which do not vary with quantity produced that a firm has to
pay in order to produce and sell its goods.
Become a fan on Facebook
Follow us on Twitter
