Basic microeconomics definitions

Microeconomics concepts

All other factors of production are fixed in quantity. Individual actors are often grouped into microeconomic subgroups, such as buyers, sellers , and business owners. Satiation --A level of consumption where the consumer is fully satisfied in a given period of time. Producer Optimum --A choice of input combinations or output levels that maximize the profits of a producer taking all prices as a given. It is at this point that economists make the technical assumption that preferences are locally non-satiated. Some economists define production broadly as all economic activity other than consumption. Resources --The raw materials and other factors of production that enter the production process or final goods and services that are desired by economic agents. Price Elastic Demand --When the percentage change in quantity demanded exceeds the percentage change in market price. Relative Prices --A ratio of any two prices or one particular price compared to a price index.

Compare Investment Accounts. Supply --A relationship between market price and quantities of goods and services made available for sale in a given period of time.

Nature of microeconomics

However, the theory works well in situations meeting these assumptions. Market failure in positive economics microeconomics is limited in implications without mixing the belief of the economist and their theory. The fixed cost refers to the cost that is incurred regardless of how much the firm produces. In particular, microeconomics focuses on patterns of supply and demand and the determination of price and output in individual markets e. In fact, much analysis is devoted to cases where market failures lead to resource allocation that is suboptimal and creates deadweight loss. Thus, the theory of product pricing and theory of factor pricing fall within the domain of microeconomics. The theory of supply and demand usually assumes that markets are perfectly competitive. Unrelated Goods --A pair of goods where the quantity demand of one is unaffected by changes in the price of the other. The technical assumption that preference relations are continuous is needed to ensure the existence of a utility function. Constant Returns to Scale CRS --A long run production concept where a doubling of all factor inputs exactly doubles the amount of output.

Wants --Preferences for goods and services over and above human needs. Market failure in positive economics microeconomics is limited in implications without mixing the belief of the economist and their theory.

The theory of supply and demand usually assumes that markets are perfectly competitive. Neoclassical economics focuses on how consumers and producers make rational choices to maximize their economic well being, subject to the constraints of how much income and resources they have available.

The supply and demand model describes how prices vary as a result of a balance between product availability at each price supply and the desires of those with purchasing power at each price demand. Negotiation Space --A set of consumption bundles points relative to an initial or current endowment where one or all consumers can be made better off through trade without harming any other consumers.

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A Glossary of Microeconomic Terms