Individuals, firms, markets and market failure Key Terms

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Economic Methodology

The study of the methods and principles used by economists to analyze economic phenomena.

Economic Activity

The actions that involve the production, distribution, and consumption of goods and services.

Scarcity

The limited nature of society's resources, given society's unlimited wants and needs.

Scarcity

The limited nature of society's resources, given society's unlimited wants.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Economic Problem

The challenge of making choices due to scarcity of resources.

Trade-off

The alternatives that must be given up when one option is chosen over another.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Shifts in the PPF

Changes in the PPF that occur due to factors such as technological advancements or changes in resource availability, indicating a change in production capacity.

Utility

A measure of satisfaction or pleasure derived from consuming goods and services.

Diminishing Marginal Utility

The principle that as a consumer consumes more units of a good, the additional satisfaction gained from each additional unit decreases.

Information Asymmetry

A situation where one party in a transaction has more or better information than the other, affecting decision-making.

Moral Hazard

The risk that one party engages in risky behavior because they do not bear the full consequences of that risk.

Bounded Rationality

The idea that individuals make decisions based on limited information and cognitive resources.

Loss Aversion

The tendency to prefer avoiding losses over acquiring equivalent gains.

Behavioral Economics

A field of economics that studies how psychological factors influence economic decision-making and behavior.

Nudge

A concept in behavioral economics that refers to subtle policy shifts that encourage individuals to make decisions that are in their self-interest.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given time period.

Price elasticity of demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good.

Elastic Demand

When the quantity demanded changes significantly with a small change in price (PED > 1).

Inelastic Demand

When the quantity demanded changes little with a large change in price (PED < 1).

Supply

The total amount of a good or service that producers are willing and able to sell at different prices.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable in economic analysis.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used in economics to isolate the effect of one variable.

Elasticity

A measure of how much one variable responds to changes in another variable, commonly used in the context of supply and demand.

Market Equilibrium

The state in which market supply and demand balance each other, resulting in stable prices.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal', used to isolate the effect of one variable.

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded over a given period.

Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied over a given period.