economics terms


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.

At its simplest, however, we often find an equilibrium at the intersection of two or more lines.  The explanation is this.  Suppose line A represents the optimizing behavior of one group of agents, and suppose line B represents the optimizing behavior of another group of agents.  Then, the intersection of lines A and B is the equilibrium where both groups of agents are optimizing.

The classic example is supply and demand.  The supply curve shows the quantity supplied at a given price by profit-maximizing firms.  The demand curve shows the quantity demanded at a given price by utility-maximizing consumers.  The intersection of the supply curve and the demand curve is the point that maximizes both profits and utility.

Classic Economic Models
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Classic Economic Models

Economics Terms

Arbitrage Pricing
Arbitrage Profit
Average Cost
Balance of Payments
Budget Constraint
Call Option
Concave Function
Consumer Surplus
Consumption Function
Convex Function
Deadweight Loss
Demand Curve
Economic Agent
Economic Model
Economics Textbook
Endogenous Technical Change
Exchange Rate
Expectations Hypothesis
Federal Funds (Fed Funds) Rate
Fixed Exchange Rate
Floating Exchange Rate
Frictional Unemployment
Gross Domestic Product (GDP)
Income Effect
Income Elasticity
Indifference Curve
Interest Rate
Intertemporal Substitution
Jensen's Inequality
Marginal Cost
Marginal Product
Marginal Utility
Optimizing Behavior
Perfect Competition
Phillips Curve
Price Elasticity
Producer Surplus
Production Function
Production Possibility Frontier
Put Option
Reservation Wage Rate
Risk Aversion
Structural Unemployment
Substitution Effect
Supply Curve
Taylor Rule
Technological Growth
Term Structure
Theory of the Consumer
Theory of the Firm
Unemployment Rate
Utility Function
Velocity of Money
Yield Curve