Title: Microeconomics Principles — LearnCoachAssist

Q: What is economics?
A: The study of how individuals and societies allocate scarce resources to satisfy unlimited wants.

Q: What is scarcity?
A: The condition of having limited resources to meet unlimited wants.

Q: What is opportunity cost?
A: The value of the next-best alternative forgone when making a choice.

Q: What is microeconomics?
A: The branch studying decisions of individuals, households, and firms.

Q: What is macroeconomics?
A: The branch studying economy-wide phenomena like GDP, inflation, and unemployment.

Q: What is a market?
A: Any arrangement where buyers and sellers interact to trade goods and services.

Q: What is supply?
A: The quantity of a good producers are willing to sell at various prices.

Q: What is demand?
A: The quantity of a good consumers are willing to buy at various prices.

Q: What is the law of demand?
A: All else equal, as price rises, quantity demanded falls.

Q: What is the law of supply?
A: All else equal, as price rises, quantity supplied rises.

Q: What is equilibrium price?
A: The price at which quantity supplied equals quantity demanded.

Q: What happens when there is a shortage?
A: Quantity demanded exceeds quantity supplied; prices tend to rise.

Q: What happens when there is a surplus?
A: Quantity supplied exceeds quantity demanded; prices tend to fall.

Q: What is a price floor?
A: A government-set minimum price (e.g., minimum wage) above equilibrium; causes surpluses.

Q: What is a price ceiling?
A: A government-set maximum price (e.g., rent control) below equilibrium; causes shortages.

Q: What is consumer surplus?
A: The difference between what consumers are willing to pay and what they actually pay.

Q: What is producer surplus?
A: The difference between what producers receive and the minimum they would accept.

Q: What is deadweight loss?
A: The loss of total surplus when a market is not at equilibrium (e.g., due to taxes or price controls).

Q: What is elasticity?
A: A measure of responsiveness of one variable to changes in another.

Q: What is price elasticity of demand?
A: % change in quantity demanded ÷ % change in price.

Q: What is elastic demand?
A: |Ed| > 1; quantity is highly responsive to price.

Q: What is inelastic demand?
A: |Ed| < 1; quantity is not very responsive to price.

Q: What is unit elastic demand?
A: |Ed| = 1; percentage changes are equal.

Q: What factors affect elasticity?
A: Substitutes, necessity vs. luxury, share of income, time horizon.

Q: What is cross-price elasticity?
A: % change in quantity demanded of A ÷ % change in price of B.

Q: What does positive cross-price elasticity indicate?
A: The goods are substitutes.

Q: What does negative cross-price elasticity indicate?
A: The goods are complements.

Q: What is income elasticity?
A: % change in quantity demanded ÷ % change in income.

Q: What is a normal good?
A: A good with positive income elasticity (demand rises with income).

Q: What is an inferior good?
A: A good with negative income elasticity (demand falls as income rises).

Q: What is a Giffen good?
A: A rare inferior good whose demand rises as its price rises.

Q: What is a Veblen good?
A: A luxury good whose demand rises as its price rises due to status.

Q: What is utility?
A: A measure of satisfaction from consuming a good or service.

Q: What is marginal utility?
A: The additional utility from consuming one more unit.

Q: What is the law of diminishing marginal utility?
A: Each additional unit consumed adds less utility than the previous one.

Q: What is utility maximization?
A: Consumers allocate spending so the marginal utility per dollar is equal across goods.

Q: What is an indifference curve?
A: A curve showing combinations of two goods that yield the same utility.

Q: What is the marginal rate of substitution?
A: The rate at which a consumer would trade one good for another to maintain utility.

Q: What is a budget constraint?
A: The combinations of goods a consumer can afford given income and prices.

Q: What is consumer choice theory?
A: Consumers maximize utility subject to a budget constraint.

Q: What is total revenue?
A: Price × quantity sold.

Q: What is total cost?
A: The sum of fixed and variable costs.

Q: What is fixed cost?
A: Cost that does not vary with output (e.g., rent).

Q: What is variable cost?
A: Cost that varies with output (e.g., raw materials).

Q: What is marginal cost?
A: The cost of producing one more unit.

Q: What is marginal revenue?
A: The additional revenue from selling one more unit.

Q: What is the profit maximization rule?
A: Produce where marginal revenue equals marginal cost.

Q: What is average total cost?
A: Total cost divided by quantity.

Q: What is average variable cost?
A: Variable cost divided by quantity.

Q: What is economic profit?
A: Total revenue minus total opportunity cost (including implicit costs).

Q: What is accounting profit?
A: Total revenue minus explicit costs.

Q: What is normal profit?
A: Zero economic profit; revenue covers all costs including opportunity cost.

Q: What are economies of scale?
A: Cost advantages from increased production scale.

Q: What are diseconomies of scale?
A: Rising average costs as output grows beyond a certain point.

Q: What are constant returns to scale?
A: When average costs remain constant with scale.

Q: What is perfect competition?
A: A market with many small firms, identical products, free entry/exit, perfect information.

Q: What is the long-run outcome of perfect competition?
A: Firms earn zero economic profit.

Q: What is a monopoly?
A: A market with a single seller of a product without close substitutes.

Q: What enables a monopoly?
A: Barriers to entry like patents, control of resources, government grants.

Q: What is a natural monopoly?
A: A market where a single firm can serve demand at lower cost than multiple firms (e.g., utilities).

Q: What is monopolistic competition?
A: Many firms selling differentiated products with relatively easy entry.

Q: What is an oligopoly?
A: A market dominated by a few firms.

Q: What is collusion?
A: Cooperation between firms to fix prices or restrict output.

Q: What is a cartel?
A: An explicit collusive agreement among firms (e.g., OPEC).

Q: What is game theory?
A: The study of strategic interaction among rational agents.

Q: What is the prisoner's dilemma?
A: A game where individual rationality leads to a worse collective outcome.

Q: What is a Nash equilibrium?
A: A set of strategies where no player can benefit by changing only their own.

Q: What is a dominant strategy?
A: A strategy yielding better outcomes regardless of opponents' actions.

Q: What is price discrimination?
A: Charging different prices to different buyers for the same product.

Q: What conditions enable price discrimination?
A: Market power, ability to segment buyers, prevention of resale.

Q: What is first-degree price discrimination?
A: Charging each consumer their maximum willingness to pay.

Q: What is second-degree price discrimination?
A: Pricing based on quantity or version (e.g., bulk discounts).

Q: What is third-degree price discrimination?
A: Charging different groups different prices (e.g., student discounts).

Q: What is the marginal product of labor?
A: The additional output from one more worker.

Q: What is the law of diminishing marginal returns?
A: Adding more of one input while holding others constant eventually yields smaller increases in output.

Q: What is the production function?
A: A relationship describing output from inputs.

Q: What is the short run in economics?
A: A period in which at least one input is fixed.

Q: What is the long run?
A: A period in which all inputs can vary.

Q: What is an externality?
A: A cost or benefit affecting third parties not involved in the transaction.

Q: What is a negative externality?
A: A cost imposed on others (e.g., pollution).

Q: What is a positive externality?
A: A benefit conferred on others (e.g., vaccinations).

Q: What is the socially optimal output?
A: The output where social marginal benefit equals social marginal cost.

Q: What is a Pigouvian tax?
A: A tax to correct a negative externality by internalizing its cost.

Q: What is the Coase theorem?
A: If property rights are clear and transaction costs low, parties can negotiate to efficient outcomes.

Q: What is a public good?
A: A good that is non-rivalrous and non-excludable (e.g., national defense).

Q: What is the free-rider problem?
A: Individuals benefit from a public good without paying.

Q: What is the tragedy of the commons?
A: Shared resources are overused when individuals act in self-interest.

Q: What is asymmetric information?
A: When one party in a transaction has more information than the other.

Q: What is moral hazard?
A: When a party takes more risk because the costs fall on others (e.g., insurance).

Q: What is adverse selection?
A: When asymmetric information leads to undesirable participants in a market (e.g., sick people buying insurance).

Q: What are signals (signaling)?
A: Actions taken to convey information (e.g., diplomas signal ability).

Q: What is screening?
A: When an uninformed party induces the informed party to reveal information.

Q: What is the principal-agent problem?
A: Conflicts when an agent acts on behalf of a principal with different incentives.

Q: What is rent-seeking?
A: Spending resources to obtain economic rents without creating value.

Q: What is economic rent?
A: Payment to a factor in excess of its opportunity cost.

Q: What is a factor of production?
A: An input used in production (labor, capital, land, entrepreneurship).

Q: What is marginal revenue product?
A: The additional revenue from employing one more unit of an input.

Q: What is the labor demand curve?
A: A downward-sloping curve showing wage and quantity of labor demanded.

Q: What is labor supply?
A: The amount of labor workers are willing to provide at various wages.

Q: What is human capital?
A: The skills, knowledge, and experience of workers.

Q: What is the minimum wage's potential downside?
A: It can cause unemployment if set above equilibrium for low-skill labor.

Q: What is unemployment in microeconomics?
A: Workers who can't find a job at the prevailing wage.

Q: What is capital in economics?
A: Goods used to produce other goods, like machines and buildings.

Q: What is the interest rate?
A: The price of borrowing money, expressed as a percentage.

Q: What is present value?
A: The current worth of a future sum, discounted by the interest rate.

Q: What is risk premium?
A: The extra return required to take on additional risk.

Q: What is the time value of money?
A: A dollar today is worth more than a dollar tomorrow due to interest and risk.

Q: What is comparative advantage?
A: The ability to produce a good at a lower opportunity cost than others.

Q: What is absolute advantage?
A: The ability to produce more of a good with the same inputs.

Q: Who developed the theory of comparative advantage?
A: David Ricardo.

Q: What is specialization?
A: Focusing on producing what one is best at, then trading.

Q: What are gains from trade?
A: Mutual benefits when both parties specialize and exchange.

Q: What is the production possibilities frontier (PPF)?
A: A curve showing combinations of two goods an economy can produce.

Q: What does a point inside the PPF represent?
A: Inefficient use of resources.

Q: What does a point outside the PPF mean?
A: Unattainable with current resources.

Q: What does the PPF's shape (concave) imply?
A: Increasing opportunity costs.

Q: What is allocative efficiency?
A: Producing the mix of goods consumers most want.

Q: What is productive efficiency?
A: Producing at the lowest cost possible.

Q: What is Pareto efficiency?
A: An allocation where no one can be made better off without making someone worse off.

Q: What is a Pareto improvement?
A: A change that makes someone better off without harming anyone.

Q: What is Kaldor-Hicks efficiency?
A: A potential Pareto improvement: winners could compensate losers.

Q: What is welfare economics?
A: The branch evaluating economic outcomes against social welfare criteria.

Q: What is a market failure?
A: A situation where free markets allocate resources inefficiently.

Q: What are causes of market failure?
A: Externalities, public goods, market power, asymmetric information.

Q: What is government failure?
A: When government intervention causes inefficiency or worse outcomes than markets.

Q: What is regulatory capture?
A: When regulators come to serve industry interests rather than the public.

Q: What is rent control?
A: A price ceiling on rents; often leads to shortages and reduced housing quality.

Q: What is a quota?
A: A government-imposed limit on quantity of a good.

Q: What is a tariff?
A: A tax on imports.

Q: What is dumping?
A: Selling exports below cost to gain market share.

Q: What is comparative statics?
A: Comparing equilibria before and after a change in a parameter.

Q: What is the substitution effect?
A: The change in quantity demanded due to relative price changes, holding utility constant.

Q: What is the income effect?
A: The change in quantity demanded due to a change in purchasing power.

Q: What is consumer behavior theory?
A: The study of how individuals make choices to maximize utility.

Q: What is revealed preference?
A: The idea that preferences are inferred from observed choices.

Q: What is a Giffen good explained again?
A: A good for which an income effect outweighs the substitution effect, so demand rises with price.

Q: What is bounded rationality?
A: The idea that people make rational decisions within cognitive limits.

Q: What is behavioral economics?
A: A field combining psychology with economics to explain real-world behavior.

Q: What is anchoring (behavioral econ)?
A: Relying too heavily on the first piece of information offered.

Q: What is nudge theory?
A: Using subtle design changes to influence behavior without removing choice.

Q: What is loss aversion?
A: People feel losses more than equivalent gains.

Q: What is the endowment effect?
A: Valuing things more once owned.

Q: What is mental accounting?
A: Treating money differently based on its source or intended use.

Q: What is the sunk cost fallacy?
A: Letting past unrecoverable costs influence current decisions.

Q: What is hyperbolic discounting?
A: Preferring smaller immediate rewards over larger delayed ones.

Q: What is a commitment device?
A: A tool to bind future behavior to overcome present bias.

Q: What is the expected utility hypothesis?
A: People choose to maximize expected utility under uncertainty.

Q: What is risk aversion?
A: Preferring a sure outcome over a gamble with equal expected value.

Q: What is risk neutrality?
A: Indifference between a certain and uncertain outcome of equal expected value.

Q: What is risk seeking?
A: Preferring a gamble over a sure outcome of equal expected value.

Q: What is insurance?
A: Pooling risk by paying premiums to be compensated for losses.

Q: What is moral hazard in insurance?
A: Insured behavior becomes riskier because losses are covered.

Q: What is adverse selection in insurance?
A: High-risk individuals are more likely to buy insurance.

Q: What is the Coase Theorem (restated)?
A: When property rights are well-defined and transaction costs are zero, parties bargain to efficient outcomes.

Q: What is a Lindahl tax?
A: A tax tied to each person's marginal benefit from a public good.

Q: What is the median voter theorem?
A: A majority-rule voting system tends to reflect the preference of the median voter.

Q: What is rent-seeking again?
A: Lobbying for advantageous policy without creating economic value.

Q: What is creative destruction (Schumpeter)?
A: The process by which innovation destroys old industries and creates new ones.

Q: What is the law of one price?
A: Identical goods should sell for the same price in different markets, absent transaction costs.

Q: What is arbitrage?
A: Profiting from price differences in different markets.

Q: What is barriers to entry?
A: Obstacles preventing new firms from entering a market.

Q: What is barriers to exit?
A: Costs that prevent firms from leaving a market.

Q: What is the Herfindahl-Hirschman Index?
A: A measure of market concentration based on the sum of squared market shares.

Q: What is antitrust law?
A: Laws to prevent monopolies and promote competition.

Q: What is the Sherman Act?
A: A 1890 US law prohibiting anti-competitive agreements and monopolization.

Q: What is price gouging?
A: Charging excessively high prices during emergencies; often illegal.

Q: What is predatory pricing?
A: Setting prices below cost to drive competitors out.

Q: What is monopsony?
A: A market with a single buyer.

Q: What is a labor monopsony's effect?
A: Lower wages and employment than in competitive labor markets.

Q: What is wage discrimination?
A: Paying different wages for equal work based on characteristics like race or gender.

Q: What is efficiency wage theory?
A: Paying above market wages to increase productivity and reduce turnover.

Q: What is structural unemployment?
A: Unemployment from mismatch between skills and available jobs.

Q: What is frictional unemployment?
A: Short-term unemployment from job search transitions.

Q: What is cyclical unemployment?
A: Unemployment from downturns in the business cycle.

Q: What is the natural rate of unemployment?
A: The unemployment rate consistent with stable inflation, including frictional and structural.

Q: What is a Phillips curve?
A: A relationship between unemployment and inflation.

Q: What is stagflation?
A: Simultaneous high inflation and high unemployment.

Q: What is general equilibrium?
A: A state where all markets clear simultaneously.

Q: What is partial equilibrium?
A: Analysis of a single market in isolation.

Q: What is utility maximization with corners?
A: When optimum lies at a budget boundary (e.g., one good consumed in zero quantity).

Q: What is the envelope theorem?
A: A result about how optimal value functions change with parameters.

Q: What is dynamic programming?
A: A method to solve optimization problems over time.

Q: What is intertemporal choice?
A: Decisions involving outcomes across different times.

Q: What is the consumption-leisure tradeoff?
A: Workers balance income (consumption) against leisure.

Q: What is the backward-bending labor supply curve?
A: At high wages, additional income may reduce labor supply as workers value leisure more.

Q: What is the substitution effect on labor?
A: Higher wages make working more attractive than leisure.

Q: What is the income effect on labor?
A: Higher wages may reduce hours worked as workers can afford more leisure.

Q: What is the marginal propensity to consume?
A: The fraction of additional income spent on consumption.

Q: What is the savings rate?
A: The fraction of income saved.

Q: What is a normal vs an inferior good (revisited)?
A: Normal: demand rises with income; Inferior: demand falls.

Q: What is dependency ratio?
A: Ratio of non-working-age to working-age population.

Q: What is consumer sovereignty?
A: The idea that consumers determine what is produced via their purchases.

Q: What is producer sovereignty?
A: The idea that firms (not consumers) drive economic outcomes via advertising and supply.

Q: What is informational efficiency?
A: Markets that fully reflect available information in prices.

Q: What is the Edgeworth box?
A: A diagram showing all possible allocations of two goods between two consumers.

Q: What is contract curve?
A: The locus of Pareto-efficient allocations in an Edgeworth box.

Q: What is general equilibrium theory's first welfare theorem?
A: A competitive equilibrium with no externalities is Pareto efficient.

Q: What is the second welfare theorem?
A: Any Pareto-efficient allocation can be achieved through a competitive equilibrium with appropriate lump-sum transfers.

Q: What is a normative statement?
A: A value-laden judgment about what ought to be.

Q: What is a positive statement?
A: A factual claim about what is.

Q: What is methodological individualism?
A: Explaining economic phenomena through individual actions.

Q: What is the invisible hand (Smith)?
A: The idea that self-interest can lead to socially beneficial outcomes via markets.

Q: What is laissez-faire?
A: An economic doctrine of minimal government intervention.

Q: What is Keynesian economics?
A: A school emphasizing aggregate demand and government's role in stabilizing the economy.

Q: What is Austrian economics?
A: A school emphasizing methodological individualism and free markets.

Q: What is monetarism?
A: A school emphasizing the money supply's role in inflation and growth (Friedman).

Q: What is a key insight of behavioral economics?
A: People deviate systematically from purely rational behavior due to cognitive biases.

Q: What is mechanism design?
A: Designing rules of games/auctions to achieve desired outcomes.

Q: What is auction theory?
A: The study of how auctions allocate resources and reveal value.

Q: What is a Vickrey auction?
A: A sealed-bid second-price auction where the highest bidder wins but pays the second-highest bid.

Q: What is willingness to pay?
A: The maximum a consumer would pay for a good.

Q: What is willingness to accept?
A: The minimum a seller would accept to part with a good.

Q: What is contingent valuation?
A: A survey method to estimate willingness to pay for non-market goods.

Q: What is hedonic pricing?
A: Estimating values by decomposing prices into attribute components.

Q: What is a Lorenz curve?
A: A graph of income (or wealth) distribution: cumulative share of households vs cumulative income.

Q: What is the Gini coefficient?
A: A summary measure of inequality (0 = perfect equality, 1 = perfect inequality).

Q: What is poverty line?
A: A threshold income below which households are considered poor.

Q: What is wealth inequality?
A: The unequal distribution of assets across individuals.

Q: What is universal basic income?
A: A regular cash transfer to all citizens regardless of work.

Q: What is microfinance?
A: Small loans to poor entrepreneurs lacking access to traditional banking.

Q: What is conditional cash transfer?
A: A welfare program providing cash conditional on actions like school attendance.

Q: What is a wage premium?
A: The extra wage attributable to a characteristic like education.

Q: What is the gender pay gap?
A: The difference in earnings between men and women.

Q: What is human capital theory (Becker)?
A: Education and training as investments raising future productivity and wages.

Q: What is the firm's break-even point?
A: Where total revenue equals total cost.

Q: What is shutdown point in the short run?
A: When price falls below average variable cost; the firm should shut down.

Q: What is the long-run supply curve in perfect competition?
A: Horizontal at minimum average total cost, after entry/exit adjusts.

Q: What is the deadweight loss of a monopoly?
A: The lost surplus because monopoly restricts output below the competitive level.

Q: What is monopolistic competition's long-run outcome?
A: Zero economic profit, but produced at excess capacity.

Q: What is X-inefficiency?
A: Inefficiency from lack of competition causing higher costs than necessary.