IMPORTANT TERMS & DEFINITIONS [ECONOMICS]
Microeconomics
1.
Introduction to Economics
Scarcity
Situation where limited resources available unable to satisfy unlimited human wants
Opportunity Cost (OC)
Cost of any activity measured in terms of next best alternative forgone
Production Possibility Curve
(PPC)
Shows all different maximum attainable combinations of goods & services produced when all available resources are used efficiently at given state of technology
Law of Increasing Opportunity
Cost
As more of a good is produced, more of another good has to be sacrificed in production
Comparative Advantage
When one can perform an activity at a lower opportunity cost than anyone else
Law of Comparative Advantage
Trade can benefit countries if they specialize in goods in which they have a comparative advantage
2.
Demand & Supply
Law of Demand
Inverse relationship exists between price of good and quantity demanded of good, ceteris paribus
Law of Supply
Direct relationship exists between price of good and quantity supplied of good, ceteris paribus
Price Elasticity of Demand (PED)
Degree of responsiveness of quantity demanded of good to a change in its own price, ceteris paribus
Income Elasticity of Demand
(YED)
Degree of responsiveness of demand to a change in income of consumers, ceteris paribus
Cross Elasticity of Demand (XED)
Degree of responsiveness of demand for one product to a change in price of another, ceteris paribus
Price Elasticity of Supply (PES)
Degree of responsiveness of quantity supplied of good to a change in its own price, ceteris paribus
Consumer Surplus (CS)
Excess of price buyers willing and able to pay for good over actual price paid Producer Surplus (PS)
