Chapter 4 (Market Forces of Supply and Demand)  efficiency - the property of a resource allocation of maximizing

the total surplus received by all members of society

 market - a group of buyers and sellers of a particular good or  equality -the property of distributing economic prosperity
service uniformly among the members of society
 competitive market - a market in which there are many buyers
and many sellers so that each has a negligible impact on the
market price Chapter 11 (Public Goods and Common Resources)
 quantity demanded - the amount of a good that buyers are
willing and able to purchase  excludability - the property of a good whereby a person can be
 law of demand - the claim that, other things being equal, the prevented from using it
quantity demanded of a good falls when the price of the good  rivalry in consumption - the property of a good whereby one
rises person’s use diminishes other people’s use
 demand schedule - a table that shows the relationship between  private goods - goods that are both excludable and rival in
the price of a good and the quantity demanded consumption
 demand curve - a graph of the relationship between the price of  public goods - goods that are neither excludable nor rival in
a good and the quantity demanded consumption
 normal good - a good for which, other things being equal, an  common resources - goods that are rival in consumption but not
increase in income leads to an increase in demand excludable
 inferior good - a good for which, other things being equal, an  club goods - goods that are excludable but not rival in
increase in income leads to a decrease in demand consumption
 substitutes - two goods for which an increase in the price of one  free rider - a person who receives the benefit of a good but
leads to an increase in the demand for the other avoids paying for it
 complements - two goods for which an increase in the price of  cost–benefit analysis - a study that compares the costs and
one leads to a decrease in the demand for the other benefits to society of providing a public good
 quantity supplied - the amount of a good that sellers are willing  Tragedy of the Commons - a parable that illustrates why
and able to sell common resources are used more than is desir able from the
 law of supply - the claim that, other things being equal, the standpoint of society as a whole
quantity supplied of a good rises when the price of the good rises
 supply schedule - a table that shows the relationship between the
price of a good and the quantity supplied Chapter 13 (Cost of Production)
 supply curve - a graph of the relationship between the price of a
good and the quantity supplied  total revenue - the amount a firm receives for the sale of its
 surplus - a situation in which quantity supplied is greater than output
quantity demanded  total cost - the market value of the inputs a firm uses in
 shortage - a situation in which quantity demanded is greater than production
quantity supplied  profit - total revenue minus total cost
 explicit costs - input costs that require an outlay of money by the
firm
Chapter 5 (Elasticity and Its Application)  implicit costs - input costs that do not require an outlay of money
by the firm
 elasticity - a measure of the responsiveness of quantity demanded  economic profit - total revenue minus total cost, including both
or quantity supplied to a change in one of its determinants explicit and implicit costs
 price elasticity of demand - a measure of how much the quantity  accounting profit - total revenue minus total explicit cost
demanded of a good responds to a change in the price of that  production function - the relationship between the quantity of
good, computed as the percentage change in quantity demanded inputs used to make a good and the quantity of output of that
divided by the percentage change in price good
 total revenue - the amount paid by buyers and received by sellers  marginal product - the increase in output that arises from an
of a good, computed as the price of the good times the quantity additional unit of input
sold
 income elasticity of demand - a measure of how much the  diminishing marginal product - the property whereby the
quantity demanded of a good responds to a change in consumers’ marginal product of an input declines as the quantity of the input
income, computed as the percentage change in quantity increases
demanded divided by the percentage change in income  fixed costs - costs that do not vary with the quantity of output
 cross-price elasticity of demand - a measure of how much the produced
quantity demanded of one good responds to a change in the price  variable costs - costs that vary with the quantity of output
of another good, computed as the percentage change in quantity produced
demanded of the first good divided by the percentage change in  average total cost - total cost divided by the quantity of output
price of the second good  average fixed cost - fixed cost divided by the quantity of output
 price elasticity of supply - a measure of how much the quantity  average variable cost - variable cost divided by the quantity of
supplied of a good responds to a change in the price of that good, output
computed as the percentage change in quantity supplied divided marginal cost - the increase in total cost that arises from an extra

by the percentage change in price unit of production
 efficient scale - the quantity of output that minimizes average
total cost
Chapter 6 (Supply, Deman and Government Policies)  economies of scale - property whereby long-run average total
cost falls as the quantity of output increases
 price ceiling - a legal maximum on the price at which a good can  diseconomies of scale - the property whereby long-run average
be sold total cost rises as the quantity of output increases
 price floor - a legal minimum on the price at which a good can  constant returns to scale - the property whereby long-run
be sold average total cost stays the same as the quantity of output changes
 tax incidence - the manner in which the burden of a tax is shared
among participants in a market

Chapter 7 (Consumer, Producers and Efficiency of

markets)
 welfare economics - the study of how the allocation of resources
affects economic well-being
 willingness to pay - the maximum amount that a buyer will pay
for a good
 consumer surplus - the amount a buyer is willing to pay for a
good minus the amount the buyer actually pays for it
 cost - the value of everything a seller must give up to produce a
good
 producer surplus - the amount a seller is paid for a good minus
the seller’s cost of providing it