Economics Terms Economics Economic Model Equilibrium GDP - Gross Domestic Product Interest Rate Macroeconomics Marginal Cost (MC) Microeconomics Monopoly Theory of the Firm Source

Economics Economics is the study of resource allocation among agents with optimizing behavior.optimizing behavior The Classic Economic Models collection emphasizes the role of economic models in describing that behavior.Classic Economic Models

Economic Model An economic model attempts to abstract from complex human behavior in a way that sheds some insight into a particular aspect of that behavior. This process inherently ignores important aspects of real-world behavior, making the modeling process an art as well as a mathematical exercise. The expression of a model can be in the form of words, diagrams, or mathematical equations, depending on the audience and the point of the model. The Classic Economic Models collection emphasizes the role of diagrammatic economic models in describing optimizing behavior.Classic Economic Models

Equilibrium The concept of an economic equilibrium is fundamentally very complex and subtle. The goal to is to derive the outcome when the agents described in a model complete their process of maximizing behavior. Determining when that process is complete, in the short run and in the long run, is an elusive goal as successive generations of economists rethink the strategies that agents might pursue.

GDP - Gross Domestic Product Gross Domestic Product (GDP). The market value of goods and services produced by labor and property in the United States, regardless of nationality; GDP replaced GNP as the primary measure of U.S. production in Gross National Product (GNP). The market value of goods and services produced by labor and property supplied by U.S. residents, regardless of where they are located. Source: Bureau of Economic Analysis.Bureau of Economic Analysis

Interest Rate An interest rate is the rate of increase over time of a bank deposit. Interest rates discussed in the popular press are often actually bond yields. The yield on a bond is the interest rate that would make the present value of the bond payment stream equal to the current bond price.

Macroeconomics The distinction between microeconomics and macroeconomics can be described in terms of small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most important distinction, however, is in terms of the role of equilibrium. While issues in microeconomics seldom challenge the notion of a naturally occurring equilibrium, the existence of business cycles and, especially, unemployment suggests to many observers that macroeconomics raises issues of a different character. EconModel reference: Macroeconomics.Macroeconomics

Marginal Cost (MC) The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. More formally, the marginal cost is the derivative of total production costs with respect to the level of output. Marginal cost and average cost can differ greatly. For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20 The EconModel applications Perfect Competition and Monopoly emphasize the roles of average cost and marginal cost curves.Perfect Competition Monopoly

Microeconomics The distinction between microeconomics and macroeconomics can be described in terms of small-scale vs. large-scale or in terms of partial vs. general equilibrium. Perhaps the most important distinction, however, is in terms of the role of equilibrium. While issues in microeconomics seldom challenge the notion of a naturally occurring equilibrium, the existence of business cycles and, especially, unemployment suggests to many observers that macroeconomics raises issues of a different character. EconModel reference: MicroeconomicsMicroeconomics

Monopoly The Theory of the Firm studies the profit-maximizing behavior of a firm, and that behavior depends in part on the demand curve the firm faces. There are two interesting cases. Under Perfect Competition, the firm faces a horizontal demand curve. It can sell any quantity desired at the market price, but cannot sell anything above the market price. Under Monopoly / Monopolistic Competition, the firm faces a downward sloping demand curve. Its price does affect the quantity sold either because it is the only firm in the market (a monopoly) or because the products in its market are not perfect substitutes (monopolistic competition).Perfect CompetitionMonopoly / Monopolistic Competition

Theory of the Firm Microeconomics is traditionally constructed from two branches, the theory of the firm and the theory of the consumer. The former studies the supply of goods by profit- maximizing agents, and the latter studies consumption by utility-maximizing agents. The counterpart to the supply and demand for goods is the supply and demand for labor by consumers and firms. The EconModel applications that feature the Theory of the Firm include Perfect Competition, Monopoly / Monopolistic Competition, Price Discrimination, and The Demand for Labor.Perfect CompetitionMonopoly / Monopolistic CompetitionPrice DiscriminationThe Demand for Labor