Jordan Oates's Key Ideas from Microeconomics
by Paul Krugman, Robin Wells

"The true cost of something is its opportunity cost: what you must give up to get it."

"Markets usually lead to efficiency."

"A production possibilities frontier (PPF) illustrates the trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity of the other good produced." 

"An individual has a comparative advantage in producing a good or service if the opportunity cost of producing the good or service is lower for that individual than for other people." 

"Gains from trade arise from specialization, in which individuals and countries specialize in producing the things they are comparatively better at producing."

"The demand curve shows the quantity demanded at each price."

"The supply curve shows the quantity supplied at each price."

"The market is in equilibrium when the quantity demanded equals the quantity supplied."

"Consumer surplus is the difference between a buyer’s willingness to pay for a good and the price the buyer actually pays."

"Producer surplus is the difference between the price a seller receives and the minimum price the seller is willing to accept."

"Total surplus is the sum of consumer surplus and producer surplus; it represents the total net benefit to consumers and producers from trading in the market."

"A price ceiling is a maximum price sellers are allowed to charge for a good or service."

"A price floor is a minimum price buyers are required to pay for a good or service."

"A quantity control, or quota, is an upper limit on the quantity of some good that can be bought or sold."

"The price elasticity of demand is the ratio of the percentage change in the quantity demanded to the percentage change in the price." 

"The price elasticity of supply is the ratio of the percentage change in the quantity supplied to the percentage change in the price." 

"The incidence of a tax—the division of the burden of the tax between buyers and sellers—depends on the price elasticities of demand and supply."

"Taxes drive a wedge between the price paid by buyers and the price received by sellers."

"The deadweight loss from a tax represents the value of the transactions that do not occur because of the tax."

"Tax incidence depends on the relative elasticities of supply and demand: the burden of the tax falls more heavily on the side of the market that is less elastic."

"International trade allows countries to specialize in producing goods and services in which they have a comparative advantage, leading to overall gains from trade." 

"A tariff is a tax levied on goods imported into a country."

"Although trade restrictions benefit certain domestic producers, they reduce overall economic welfare by raising prices and reducing the quantity of goods consumed."

"The principle of marginal analysis states that the optimal quantity of an activity is the quantity at which marginal benefit equals marginal cost."

"Individuals make choices at the margin, comparing the additional benefit of one more unit of an activity with the additional cost of that unit."

"Firms aim to maximize profit, which is the difference between total revenue and total cost."

"A fixed cost is a cost that does not change with the quantity of output produced."

"A variable cost is a cost that depends on the quantity of output produced."

"Marginal cost (MC) is the change in total cost generated by producing one more unit of output."

"A perfectly competitive market is one in which all market participants—both consumers and producers—are price-takers."

"An individual firm in a perfectly competitive market faces a perfectly elastic demand curve."

"In the long run, in a perfectly competitive industry with free entry and exit, economic profit is driven to zero."

"A monopolist is a firm that is the sole seller of a good or service with no close substitutes."

"A monopolist’s demand curve is the market demand curve, which slopes downward."

"Compared with perfect competition, a monopolist produces less output and charges a higher price, creating deadweight loss for society."

"An oligopoly is a market structure in which only a few sellers offer similar or identical products."

"Oligopolists can increase their profits by forming a cartel and acting like a monopolist."

"Because each oligopolist has an incentive to cheat on the cartel agreement, cartels are often unstable."

"Monopolistic competition is a market structure in which there are many firms selling differentiated products."

"Because its product is differentiated, a monopolistically competitive firm faces a downward-sloping demand curve."

"In the long run, free entry and exit drive economic profit to zero in a monopolistically competitive industry."

"An externality is a cost or benefit that affects someone who did not choose to incur that cost or benefit."

"A negative externality creates a marginal social cost that exceeds the marginal private cost of production."

"Government intervention in markets with externalities can increase economic efficiency."

"A good is nonrival in consumption if one person’s consumption of the good does not reduce the amount of the good available for others to consume."

"A good is nonexcludable if people cannot be prevented from consuming the good."

"Common resources are nonexcludable but rival in consumption, leading to the tragedy of the commons."

"Asymmetric information exists when one party to a transaction has more information relevant to the transaction than the other party."

"Adverse selection arises when one party knows more about the attributes of the good being sold than the other party."

"Moral hazard occurs when one party changes its behavior after a contract is signed, in ways that could be costly to the other party."

"The demand for labor is a derived demand—it results from the demand for the goods and services produced by labor."

"The supply of labor reflects the trade-off between leisure and income."

"Human capital—the accumulated knowledge and skills that workers acquire from education and training or from their life experiences—is a key determinant of wages."

"The Lorenz curve is a graphical representation of income inequality."

"Poverty exists when a family’s income is below a certain threshold (the poverty line) considered adequate to support a family of that size."

"Government policies designed to reduce poverty and income inequality often involve trade-offs between equity and efficiency."