Economics - the science of making decisions in the Market Demand Curve - a curve indicating the total

presence of scarce resources. quantity of a good all consumers are willing and able to
purchase at each possible price, holding the prices of
Managerial Economics - the study of how to direct
scarce resources in the way that most efficiently
achieves a managerial goal.
Accounting Profits - the total amount of money taken in
from sales (total revenue, or price times quantity sold)
minus the dollar cost of producing goods or services.
Economic Profits - the difference between total
revenue and total opportunity cost.
related
Opportunity Cost - the explicit cost of a resource plus goods,
the implicit cost of giving up its best alternative use. income,

advertising, and other variables constant.

Time Value Of Money - the fact that $1 today is worth

more than $1 received in the future.
Present Value - the amount that would have to be
invested today at the prevailing interest rate to
generate the given future value.
Net Present Value - the present value of the income
stream generated by a project minus the current cost of
Change In Quantity Demanded - changes in the price of
a good lead to a change in the quantity demanded of
that good. This corresponds to a movement along a
given demand curve.
Change In Demand - changes in variables other than the
price of a good, such as income or the price of another
good, lead to a change in demand. This corresponds to
a shift of the entire demand curve.

the project. Normal Good - a good for which an increase (decrease)

in income leads to an increase (decrease) in the demand
Marginal Benefit - the change in total benefits arising for that good.
from a change in the managerial control variable q.
Inferior Good - A good for which an increase (decrease)
Marginal (Incremental) Cost (MC) - the change in total in income leads to a decrease (increase) in the demand
costs arising from a change in the managerial control for that good.
variable q.
Substitutes - goods for which an increase (decrease) in
Incremental Revenues - the additional revenues that the price of one good leads to an increase (decrease) in
stem from a yes or-no decision. the demand for the other good.
Incremental Costs - the additional costs that stem from
a yes-or-no decision.
Law Of Demand - as the price of a good rises (falls) and
all other things remain constant, the quantity
demanded of the good falls (rises).  
 Complements - prices, technology, and other variables affecting supply
goods for which an constant.
increase (decrease) in the price of one good leads to a
decrease (increase) in the demand for the other good.

Change In Quantity Supplied - changes in the price of a

Demand Function - a function that describes how much
of a good will be purchased at alternative prices of that
good and related goods, alternative income levels, and
alternative values of other variables affecting demand.
good lead to a change in the quantity supplied of that
good. This corresponds to a movement along a given
supply curve.
Change In Supply - changes in variables other than the
price of a good, such as input prices or technological
advances, lead to a change in supply. This corresponds
to a shift of the entire supply curve.

Linear Demand Function - a representation of the

demand function in which the demand for a given good
is a linear function of prices, income levels, and other
variables influencing demand.

Supply Function - a function that describes how much

of a good will be produced at alternative prices of that
good, alternative input prices, and alternative values of
other variables affecting supply.

Linear
Supply

Consumer Surplus - the value consumers get from a

good but do not have to pay for.
Market Supply Curve - a curve indicating the total
quantity of a good that all producers in a competitive
market would produce at each price, holding input
 Function - determined by the interaction of market supply and
a market demand for the good.
Price Ceiling - the maximum legal price that can be
charged in a market.
representation of the supply function in which the
supply of a given good is a linear function of prices and
other variables affecting supply

Full Economic Price - the dollar amount paid to a firm

under a price ceiling, plus the nonpecuniary price.

Price Floor – the minimum legal price that can be

charged in a market.

Producer Surplus - the amount producers receive in

excess of the amount necessary to induce them to
produce the good.
MARKET EQUILIBRIUM
The equilibrium price in a competitive market is

determined by the interactions of all buyers and sellers

in the market. The concepts of market supply and
market demand make this notion of interaction more
precise: The price of a good in a competitive market is
 Perfectly Elastic Demand - demand is perfectly elastic if
the own price elasticity is infinite in absolute value. In
this case the demand curve is horizontal.
Perfectly Inelastic Demand - demand is perfectly
inelastic if the own price elasticity is zero. In this case
the demand curve is vertical.

Elasticity - a measure of the responsiveness of one

variable to changes in another variable; the percentage
change in one variable that arises due to a given
percentage change in another variable.

Own Price Elasticity Of Demand - a measure of the

responsiveness of the quantity demanded of a good to a
change in the price of that good; the percentage change
in quantity demanded divided by the percentage
change in the price of the good.

Elastic Demand - demand is elastic if the absolute value

of the own price elasticity is greater than 1.
Inelastic Demand - demand is inelastic if the absolute
value of the own price elasticity is less than 1.
Marginal Revenue (MR) - is the change in total revenue
due to a change in output, and that to maximize profits
a firm should produce where marginal revenue equals
marginal cost.

Cross-Price Elasticity - a measure of the responsiveness

of the demand for a good to changes in the price of a
Unitary Elastic Demand - demand is unitary elastic if related good; the percentage change in the quantity
the absolute value of the own price elasticity is equal to
1.

Total Revenue Test

If demand is elastic, an increase
(decrease) in price will lead to a decrease (increase) in
total revenue. If demand is inelastic, an increase demanded of one good divided by the percentage
(decrease) in price will lead to an increase (decrease) in change in the price of a related good.
total revenue. Finally, total revenue is maximized at the
point where demand is unitary elastic
Income Elasticity - a measure of the responsiveness of
the demand for a good to changes in consumer income;
the percentage change in quantity demanded divided
by the percentage change in income.

Log-Linear Demand - demand is log-linear if the

logarithm of demand is a linear function of the
logarithms of prices, income, and other variables.

Least Squares Regression - the line that minimizes the

sum of squared deviations between the line and the
actual data points.
Y = a + bX + e
Y = â + bˆ X
These values of a and b, which frequently are denoted â
and bˆ, are called parameter estimates
T-Statistic - the ratio of the
value of a parameter estimate

to the standard error of the parameter estimate.