Microeconomics
Free market A place where a large number of buyers and sellers who are free to
own land and capital interact to carry out economic transactions.
Demand Quantities of a product that consumers are willing and able to buy at
various prices in a given time period, ceteris paribus.
Complements Goods that are used jointly together to satisfy some particular want or
need.
Substitutes Alternative products that satisfy similar wants or needs.
Supply Quantities of a product that suppliers are willing and able to sell at
various prices in a given time period, ceteris paribus.
Price mechanism The price mechanism is defined as the forces of demand and supply
that determines the allocation of resources between competing and
alternative users.
Consumer The difference between what consumers are willing and able to pay for
surplus a unit of good and what they actually pay for the good.
Producer surplus The difference between the revenue the producers receive from the
sale of a unit of good and the price at which the producers are willing
to make that unit that good.
Price elasticity of The measure of the responsiveness of the quantity demanded of a
demand commodity to the changes in its prices, ceteris paribus.
Cross elasticity The responsiveness of the demand of one good to the changes in the
of demand price of another good.
Income elasticity The responsiveness of demand for a good to a change in income.
of demand
Price elasticity of The responsiveness of quantity supplied of a good to a change in its
supply own price, ceteris paribus.
Primary products Primary commodities are raw material obtained from land and include
agricultural commodities, minerals and fishing products.
Manufactured A manufactured good is a good that is produced mainly by the
products application of labour and capital to raw materials and other
intermediate inputs.
Indirect taxes Tax levied on goods and services.
Subsidies Payments from the government to firms with the aim of lowering their
costs of production.
Price ceiling The legal maximum price that is set below the market equilibrium
price.
Price floors The legal minimum price that is set above market equilibrium price.
, Market failure The failure of the market to achieve allocative efficiency of society’s
resources, resulting in an over-allocation or under-allocation of
resources in the absence of government intervention.
Economic A situation where each good is produced at the minimum average cost
efficiency and where the individual people and firms get maximum benefit from
their resources.
Productive Production of any bundle of goods and services in the economy that is
efficiency produced in the least costly manner and when all resources are fully
employed.
Allocative Firms produce the right quantities of the right goods and services.
efficiency
Social efficiency The marginal benefit to society is equal to the marginal cost to society.
Merit goods Socially desirable goods that bring external benefits.
Demerit goods Socially undesirable goods that bring negative externalities.
Non-excludability Impossible to exclude any individual from the benefit of the good.
Non-rivalry No opportunity cost from consuming the product / non-diminishing
benefit when one additional person enjoys the good.
Common access Gifts of nature such as fishing grounds, forests and clean air.
resources
Rivalrous in Consumption of the resource by one diminishes the amount and
consumption hence benefit to other uses.
Sustainability The consumption needs of the present generation are met without
reducing the ability to meet the needs of the future generation.
Free market A place where a large number of buyers and sellers who are free to
own land and capital interact to carry out economic transactions.
Demand Quantities of a product that consumers are willing and able to buy at
various prices in a given time period, ceteris paribus.
Complements Goods that are used jointly together to satisfy some particular want or
need.
Substitutes Alternative products that satisfy similar wants or needs.
Supply Quantities of a product that suppliers are willing and able to sell at
various prices in a given time period, ceteris paribus.
Price mechanism The price mechanism is defined as the forces of demand and supply
that determines the allocation of resources between competing and
alternative users.
Consumer The difference between what consumers are willing and able to pay for
surplus a unit of good and what they actually pay for the good.
Producer surplus The difference between the revenue the producers receive from the
sale of a unit of good and the price at which the producers are willing
to make that unit that good.
Price elasticity of The measure of the responsiveness of the quantity demanded of a
demand commodity to the changes in its prices, ceteris paribus.
Cross elasticity The responsiveness of the demand of one good to the changes in the
of demand price of another good.
Income elasticity The responsiveness of demand for a good to a change in income.
of demand
Price elasticity of The responsiveness of quantity supplied of a good to a change in its
supply own price, ceteris paribus.
Primary products Primary commodities are raw material obtained from land and include
agricultural commodities, minerals and fishing products.
Manufactured A manufactured good is a good that is produced mainly by the
products application of labour and capital to raw materials and other
intermediate inputs.
Indirect taxes Tax levied on goods and services.
Subsidies Payments from the government to firms with the aim of lowering their
costs of production.
Price ceiling The legal maximum price that is set below the market equilibrium
price.
Price floors The legal minimum price that is set above market equilibrium price.
, Market failure The failure of the market to achieve allocative efficiency of society’s
resources, resulting in an over-allocation or under-allocation of
resources in the absence of government intervention.
Economic A situation where each good is produced at the minimum average cost
efficiency and where the individual people and firms get maximum benefit from
their resources.
Productive Production of any bundle of goods and services in the economy that is
efficiency produced in the least costly manner and when all resources are fully
employed.
Allocative Firms produce the right quantities of the right goods and services.
efficiency
Social efficiency The marginal benefit to society is equal to the marginal cost to society.
Merit goods Socially desirable goods that bring external benefits.
Demerit goods Socially undesirable goods that bring negative externalities.
Non-excludability Impossible to exclude any individual from the benefit of the good.
Non-rivalry No opportunity cost from consuming the product / non-diminishing
benefit when one additional person enjoys the good.
Common access Gifts of nature such as fishing grounds, forests and clean air.
resources
Rivalrous in Consumption of the resource by one diminishes the amount and
consumption hence benefit to other uses.
Sustainability The consumption needs of the present generation are met without
reducing the ability to meet the needs of the future generation.
