Essential Microeconomic Theories and Applications
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Microeconomics: Key Concepts and Principles
Ceteris Paribus Clause
The ceteris paribus clause, when used in the context of the role of offer, does not include changes in the income of consumers.
Law of Diminishing Returns
In the context of the law of diminishing returns, the technical maximum coincides with the maximum total return.
Isocost
The slope of the isocost reflects the relative price of the two factors.
Homogeneity of Demand Functions
The fact that demand functions are homogeneous of degree zero in prices and incomes implies that changes in prices and income, in the same proportion, do not alter consumer demand.
Labor Supply Curve
When the labor supply curve bends backward, it indicates that from a certain wage level, further increases reduce the labor supply.
Neoclassical Production Distribution Theory
In the neoclassical theory of production distribution, we can say that the income of the factors of production is equal to the total product if and only if Euler's theorem is satisfied.
Edgeworth Box
The locus of the points of tangency of the indifference curves in an Edgeworth box is called the contract curve.
General Equilibrium
In a standard general equilibrium model, we can assert that there cannot be unused resources.
Monopolistic Competition
A company in monopolistic competition, in long-term equilibrium, does not fully utilize its economies of scale.
Nash Equilibrium
If a simultaneous game leads to a Nash equilibrium and we repeat it, the balance will not change; it is stable.
Mark-Up Margins
Low mark-up margins (gross profit margins) for a certain production volume can lead to losses.
Public Goods
A good whose consumption by one individual does not reduce the availability for consumption by other individuals is called a public good.
Pareto Optimality
The final balance of trade in a Pareto optimal general equilibrium must be at a point on the contract curve within the initial indifference curves because otherwise, utility levels could be lower than the initial ones.
Business Model Maximizing Sales Revenue
In the business model that maximizes revenue from sales volume, in equilibrium, it holds that marginal revenue (Im) is less than marginal cost (Cm).
Demand Function
Given a demand function P = 4 - 0.5X, the function is defined at all points.
Equilibrium Price
The price at which the quantity demanded and the quantity supplied in a market are equal is the equilibrium price.
Marginal Revenue in Monopoly
The marginal revenue function in a traditional monopoly intersects the output axis at half of its peak if the function is linear.
Marginal Utility
Marginal utility measures the increase in utility derived from an infinitesimal increment of a good.
Substitution Effect
The substitution effect on the demand for a good due to changes in its price is always negative or zero (it is opposite to the price change or has no effect).
Long-Term Average Costs
The long-term average cost curve tends to decrease when there are economies of scale.
Supply Shift in Perfect Competition
With linear functions, a shift in supply in perfect competition, such as a decrease, elicits a greater response in the market price the more inelastic the demand curve.
Demand Curve of a Factor
The demand curve of a factor is more elastic if there are other variable factors.
Minimum Operational Point
In perfect competition, the point where the marginal cost curve intersects the average variable cost curve is called the minimum operational point.
Monopolistic Competition with Product Differentiation
In a monopolistic competition model with product differentiation, the long-term equilibrium is equal to that of a monopoly when there are no extraordinary benefits.
Inferior Goods
A good whose income elasticity is negative is called an inferior good.
Price Discrimination
The general model of price discrimination refers to any practice that allows a firm to sell units of the same good at two or more different prices.