Economics Terms A-Z
Standing in contrast to macroeconomics, microeconomics looks at the choices made by economic actors - be they people, firms, or whole industries - and how they affect the allocation of scarce resources. Primarily, this involves investigation into why goods and services assume different values and understanding how changing economic conditions can alter the decision-making of economic actors.
At the core of microeconomics lies the assumption - an increasingly questioned one - that individuals are rational - as in, have stable preferences - and utility maximising in their behaviour. Built on this are the economic principles: opportunity cost, diminishing marginal utility, and supply and demand, which together make up microeconomics’ skeletal epistemological form.
Cross Elasticity of Demand
The cross elasticity of demand (or cross-price elasticity of demand) ϵAB refers to the sensitivity of the demand for item A qA to changes in the price of item B&n
A deadweight loss is the irrecoverable reduction in economic efficiency that occurs when a free-market equilibrium is disturbed by a market intervention or other shock to supply and/or demand. In economic theory, free markets are beneficial to society because they allow consumers and producers to exchange goods and services for money and both sides of the market gain at the equilibrium price in terms of consumer surplus and producer surplus. In a simple economy with just one
If market players have different levels of information about each other’s valuations of the market then the information is asymmetric, or asymmetrically distributed. In classical economic theory, information is assumed to be complete and evenly distributed among market players: each player knows how the other players value the items being traded in the market. This simplifies the analysis of the market because the players’ actions will be certain and predictable. Market outcomes (prices and quantities) can then be easily calculated.