Productive efficiency occurs when goods and services are produced at the lowest possible cost, using the best available technology and an optimal combination of resources.

The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded, holding all other factors constant. As price increases, quantity demanded decreases. As price decreases, quantity demanded increases.

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

A substitute good is a product that can be used in place of another product because the two goods serve similar purposes. For example, butter and margarine are substitutes.

The production possibilities curve shows the maximum combined amounts of two goods that can be produced with available resources and technology, illustrating the trade-offs associated with increased production of one good versus another.

Economies of scale refer to the cost advantages that companies can exploit by expanding their scale of production. As production increases, fixed costs are spread over more units, lowering average cost.

A price ceiling is a legal maximum price set by the government above which selling is prohibited. It creates a shortage when the ceiling price is set below the market equilibrium price.

A monopoly is a market structure in which there is a single seller of a good or service with no close substitutes. The monopolist has complete control over the market supply and price.

Marginal cost is the change in total cost resulting from producing one additional unit of output. It represents the cost of the last unit produced.

Barriers to entry are obstacles that make it difficult for new firms to enter a particular market. Examples include high start-up costs, government regulations, and existing firms' control over essential resources.

The principle of diminishing marginal returns states that as more of a variable input is added to fixed inputs in production, the marginal product of the variable input will eventually decline.

Allocative efficiency occurs when goods and services are produced at the lowest possible cost per unit and consumed in the optimal amounts based on consumer preferences.

Price discrimination involves a firm charging different prices to different consumers for the same good or service, usually to extract more consumer surplus.

The income effect is the change in consumer demand caused by a change in real income due to a price change, holding preferences constant. It shows how consumption patterns change as income levels change.

Externalities are costs or benefits that affect a third party not involved in a market transaction. Negative externalities lead to overproduction, while positive externalities lead to underproduction.

Opportunity cost is the value of the next best alternative foregone when a choice is made. It represents the potential benefits that are given up by choosing one option over another.

The law of diminishing marginal utility states that as a consumer consumes more units of a good or service, the additional satisfaction or utility derived from each extra unit will eventually decline.

A normal good is a good for which demand increases as consumer income rises, and demand decreases as consumer income falls, holding all other factors constant.

A price taker is a firm that has no control over market prices and must accept the prevailing market price as given. Price takers operate in perfectly competitive markets.

A public good is a good that is non-rival and non-excludable, meaning that one person's consumption does not reduce the availability for others, and no one can be excluded from consuming it.

Consumer surplus is the difference between the maximum amount a consumer is willing to pay for a good or service and the actual amount they end up paying. It represents the net benefit to the consumer.

Price equilibrium is the point where the quantity demanded by consumers equals the quantity supplied by producers, resulting in no shortage or surplus in the market.

A complementary good is a good that is consumed together with another good, such that an increase in the price of one good leads to a decrease in the demand for its complement.

Economies of scale occur when a firm's average cost of production decreases as its output increases, due to factors such as more efficient use of resources, specialization, and bulk purchasing discounts.

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. It is calculated as the percentage change in quantity supplied divided by the percentage change in price.

A monopolistically competitive market is characterized by many sellers offering differentiated products, easy entry and exit, and some degree of market power due to product differentiation.

Economic profit is the difference between a firm's total revenue and its total economic cost, which includes both explicit costs and opportunity costs. It represents the firm's return above its opportunity cost.

The law of supply states that there is a direct relationship between the price of a good and the quantity supplied, holding all other factors constant. As price increases, quantity supplied increases. As price decreases, quantity supplied decreases.

A giffen good is a rare case where an increase in price leads to an increase in quantity demanded, defying the law of demand. This occurs when the income effect outweighs the substitution effect for very low-income consumers.

Market failure occurs when the free market fails to allocate resources efficiently, leading to a situation where government intervention may potentially improve market outcomes. Causes include externalities, public goods, and imperfect competition.

Marginal revenue is the change in a firm's total revenue resulting from the sale of one additional unit of output. It represents the revenue generated by the last unit sold.

A monopoly is a market structure in which there is a single seller of a good or service with no close substitutes. The monopolist has complete control over the market supply and price.

Utility maximization is the process of consumers allocating their limited income among different goods and services in a way that maximizes their total satisfaction or utility, subject to their budget constraint.

The production possibilities frontier represents the maximum combination of outputs that an economy can produce given its available resources and technology, illustrating the trade-offs between producing different goods.

A perfectly competitive market is characterized by many buyers and sellers, a homogeneous product, perfect information, and easy entry and exit. Firms in this market are price takers and have no market power.

Marginal product is the change in total output resulting from employing one additional unit of a variable input, holding all other inputs constant. It measures the productivity of the last unit of input employed.

A negative externality is a cost imposed on a third party not involved in a market transaction. For example, pollution from a factory affecting nearby residents is a negative externality.

A positive externality is a benefit received by a third party not involved in a market transaction. For example, individual education can have positive externalities on society by promoting economic growth.

Economic efficiency occurs when resources are allocated in a way that maximizes the total economic surplus or net benefit to society. It is achieved when marginal social benefit equals marginal social cost.

The principle of comparative advantage states that countries should specialize in producing goods and services for which they have a lower opportunity cost relative to other countries, and then trade for the remaining goods and services.

A monopsony is a market structure in which there is a single buyer of a good or service with no close substitutes. The monopsonist has complete control over the market demand and price.

Price discrimination involves a firm charging different prices to different consumers for the same good or service, usually to extract more consumer surplus. It is only possible when the firm has some market power.

The law of diminishing returns states that as more of a variable input is added to fixed inputs in production, the marginal product of the variable input will eventually decline. This leads to an increase in marginal cost.

A natural monopoly is a market structure where the entire market demand can be satisfied at lowest cost by a single firm due to economies of scale over the entire range of production.

Marginal benefit is the additional satisfaction or utility derived from consuming one extra unit of a good or service. It represents the benefit received from the last unit consumed.

Game theory is a branch of economics that studies strategic decision-making and the behavior of individuals or firms in situations of interdependence, where the outcome for each participant depends on the actions of others.

Deadweight loss is the loss of economic efficiency that occurs when the equilibrium quantity is not produced or consumed, resulting in a net loss of social welfare. It is often caused by taxes, subsidies, or market power.

Market power is the ability of a firm to raise prices above the competitive level without losing all of its customers to competitors. It is typically associated with imperfectly competitive market structures.

Marginal analysis is the process of examining the additional costs and benefits associated with producing or consuming one more unit of a good or service, which is crucial for making optimal economic decisions.