Microeconomics Definitions microeconomics is the study of individuals, firms or markets. Macroeconomics is the study of a whole country's economy growth an increase in production or income over a period of time development an improvement in the quality of life for the majority of the population sustainable development development that doesn't leave future generations worse off positive something that can be objectively measured normative something that is subjective and has a value judgement ceteris paribus everything else remains equal (latin) land any raw material labour people paid to work capital something man-made used in production entrepreneur a person that combines the other resources in production rent the payment from land wage the payment for labour interest the payment from capital profit the payment to entrepreneurs utility a unit of happiness opportunity cost the difference between the best and next best alternatives free good one with no opportunity cost economic good one with an opportunity cost mixed economy one that combines the private and public sector public sector that owned by the government private sector that owned by private individuals planned economy one where what, how and for whom to produce is decided by the government market economy one where the free market decides what and how to produce transition economy one changing from planned to market economy market a place where buyers and sellers meet monopoly a market of one firm or dominated by one firm oligopoly a market dominated by a few firms monopolistic competition a market with low barriers to entry and many firms perfect competition a market with no barriers to entry and many firms barrier to entry the cost of entering a market demand the quantity people are willing to buy at a given price supply the quantity firms are willing to sell at a given price tax an extra cost imposed by the government that increases the price subsidy a negative tax when government gives money to reduce the price maximum (ceiling) price a price set below the equilibrium minimum (floor) price a price set above the equilibrium price support/buffer stock schemes a process to control the price using a stock of unsold goods. commodity price agreements a international agreement to control the price of a good Price Elasticity of Demand (PED) the responsiveness of the quantity demanded to a change in price Cross Price Elasticity of Demand (XED) the responsiveness of the quantity demanded of one good to a change in price of another (related) good Substitute good a good that is an alternative in demand Complement good a good that is bought together with another Income Elasticity of Demand (YED) the responsiveness of the quantity demanded to a change in income Inferior good a good for which demand falls when income rises Normal good a good for which demand rises when income rises Price Elasticity of Supply (PES) the responsiveness of the quantity supplied to a change in price Primary sector the supply of land Secondary sector the supply of goods Tertiary sector the supply of services Positive externality a benefit to society that gives utility to society and not just individuals Negative externality a cost to society that is not paid for by firms in the production process Public good a good that is non-rivalrous and non-excludable Merit good a good that gives positive externalities through consumption Demerit good a good that gives negative externalities through consumption Tradable permits permits to pollute given amounts that may be bought and sold