Economic Profit

A firm's total revenue minus its explicit and implicit costs.

Cross Price Elasticity of Demand

A measure of how much the quantity demanded of one good responds to a change in the price of another good.

Budget Constraint

The limits imposed on household choices by income, wealth, and product prices.

Average Variable Cost

Variable cost divided by the quantity of output produced.

Economic Efficiency

The optimal distribution of goods and services, taking into account the best combination of factors of production.

Derived Demand

The demand for a factor of production resulting from the demand for another intermediate or final good and service.

Average Total Cost

The total cost divided by the number of goods produced. It is also equal to the sum of average variable costs plus average fixed costs.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.

Break-Even Point

The production level where total revenues equals total expenses.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Consumer Choice Theory

The branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves.

Absolute Advantage

The ability of an individual or group to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Comparative Advantage

The ability of an individual or group to carry out a particular economic activity more efficiently than another activity.

Asymmetric Information

A situation in which one party in a transaction has more or superior information compared to another.

Adverse Selection

A situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality.

Diseconomies of Scale

The disadvantages that firms encounter when production becomes inefficient, which typically occurs after a certain point as a firm continues to increase its output.

Consumer Choice

The range of competing products and services from which a consumer can choose.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.

Collusion

A non-competitive, secret, and often illegal agreement between rivals which attempts to disrupt the market's equilibrium.

Economic Growth

An increase in the amount of goods and services produced per head of the population over a period of time.

Deadweight Loss

The loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.

Budget Line

A graphical representation of all possible combinations of two goods which can be purchased with given income and prices.

Average Fixed Cost

Fixed cost divided by the quantity of output produced.

Cartel

A group of firms that collude to produce the monopoly output and sell at the monopoly price.

Barriers to Entry

The existence of high startup costs or other obstacles that prevent new competitors from easily entering an industry or area of business.