Microeconomics & Trade

The import duties introduced or modified by the United States in 2025, their implementation, international responses, economic effects, and legal challenges.

Scottish philosopher and economist (1723–1790), author of The Theory of Moral Sentiments and The Wealth of Nations, often regarded as a founder of modern economics.

Adverse selection occurs when private information causes market participation or contract choices to disproportionately attract less favorable risks or lower-quality goods.

Agglomeration economies are productivity and cost advantages arising from the geographic concentration of firms, workers, and economic activity.

Auction theory studies how bidding rules, information, and strategic behavior determine prices, revenues, and the allocation of goods and services.

Average cost is total production cost divided by output, used to analyze unit costs, profitability, and production scale.

Average variable cost is variable production cost per unit of output, used to analyze cost curves and short-run shutdown decisions.

Barriers to entry are obstacles that prevent or delay new competitors from entering a market and competing effectively with established firms.

Behavioral economics incorporates psychological evidence into economic analysis to explain how people make decisions and how those decisions shape economic outcomes.

Bounded rationality describes goal-directed decision-making constrained by limited knowledge, cognitive capacity, and time.

Comparative advantage is the ability to produce a good or service at a lower opportunity cost than another producer, creating scope for mutually beneficial specialization and trade.

Consumer surplus measures the monetary benefit buyers obtain when their willingness to pay exceeds what they actually pay.

Contract theory studies how agreements allocate incentives, risks, information, and decision rights when parties have conflicting interests and face limits on information or enforcement.

Deadweight loss is the reduction in total economic surplus caused by an allocation that differs from the socially efficient outcome.

A demand curve shows how the quantity of a good buyers are willing and able to purchase varies with its price, holding other determinants constant.

Diminishing returns occur when successive additions of one input, with other inputs held constant, produce progressively smaller increases in output.

Economic profit is revenue remaining after all explicit costs and the opportunity costs of owner-supplied resources have been deducted.

Economic regulation comprises public rules governing market entry, prices, service provision, and competition, particularly in industries with persistent market power.

Economics studies how people and societies allocate scarce resources, organize production and exchange, and distribute income and wealth.

Economies of scale are reductions in average production costs achieved as the scale of output increases.

A government refund of indirect taxes paid on goods later sold abroad, intended to keep exports free of domestic tax burdens.

An externality is a cost or benefit that an economic activity imposes on others without being fully reflected in prices or contractual arrangements.

A fixed cost remains unchanged in total as output varies within a specified period and range of activity.

A global value chain organizes the production of goods or services across countries, linking specialized activities through trade, investment, and coordination among firms.

Globalization is the development of worldwide connections and interdependence through flows of goods, capital, people, information, and culture.

American social scientist whose research connected organizational decision-making, bounded rationality, artificial intelligence, and cognitive science.

Incentive compatibility is the property that a mechanism makes truthful reporting or prescribed behavior optimal for each participant under a specified equilibrium concept.

Information asymmetry occurs when parties to an economic interaction possess unequal access to relevant information, affecting decisions, incentives, and market outcomes.

Kenneth Arrow was an American economist whose work on social choice, general equilibrium, uncertainty, and learning helped shape modern economic theory.

Marginal cost measures the additional cost of increasing output and helps explain production decisions, prices, and economic efficiency.

Marginal revenue is the change in a firm’s total revenue resulting from an additional unit of sales, linking demand, pricing, and profit-maximizing output.

A market is an arrangement through which buyers and sellers exchange goods, services, or assets under particular rules and conditions.

Market equilibrium is a state in which buyers’ and sellers’ decisions are mutually compatible, conventionally represented by equality between quantity demanded and quantity supplied.

Market failure occurs when market incentives and exchanges produce an inefficient allocation of resources, often because important costs, benefits, or information are excluded.

Market power is the ability of a firm or group of firms to profitably sustain prices or other trading terms less favorable than competitive conditions would permit.

Mechanism design studies how rules and institutions can achieve specified objectives when participants possess private information and act strategically.

Microeconomics studies individual economic decisions and how their interaction shapes prices, production, resource allocation, and welfare.

A market structure in which many firms sell differentiated products, exercise limited pricing power, and face relatively free entry and exit.

A monopoly is a market structure in which a single seller supplies a product without close substitutes, protected from competition by barriers to entry.

Moral hazard arises when protection from consequences or unobservable actions creates incentives to shift costs or risks onto others.

A market cost structure in which one supplier can serve total demand more cheaply than two or more separate suppliers.

A network effect occurs when the value of a product or service to a user depends on participation by other users.

An annual international award established by Sweden’s central bank in 1968 to recognize outstanding contributions to economic sciences.

Oligopoly is a market structure in which a few major sellers account for most supply and make decisions strategically in response to one another.

Opportunity cost is the value of the best alternative forgone when scarce resources are committed to a particular use.

A feasible allocation is Pareto efficient when no alternative can improve anyone’s welfare without worsening someone else’s.

Perfect competition is an idealized market structure in which buyers and sellers take prices as given, products are identical, and firms can freely enter or exit.

Price controls are government-imposed limits or rules governing prices, used to influence affordability, incomes, inflation, or the exercise of market power.

Price elasticity measures how strongly quantity demanded or supplied responds to a change in price, holding other relevant factors constant.

Producer surplus measures the benefit sellers receive when their revenue exceeds the minimum compensation required to supply the units sold.

Property rights are socially recognized rules governing the use, control, benefits, and transfer of assets and resources.

A public good is nonrival and nonexcludable, allowing shared benefits while creating difficulties in financing its provision.

Signaling is the strategic use of observable actions to convey private information and influence another party’s economic decisions.

Substitute and complementary goods describe how demand for one product responds to changes in another product’s price.

A sunk cost is an irrecoverable past expenditure that does not change across current alternatives and therefore does not determine their relative economic value.

An economic framework explaining how buyers’ and sellers’ decisions jointly determine market prices and quantities.

A tariff is a tax on internationally traded goods, usually imports, used to raise revenue, influence trade, and protect domestic production.

Total revenue is the value of a firm’s sales over a specified period, calculated as price multiplied by quantity for a single uniformly priced product.

Trade is the exchange of goods and services between parties, connecting production and consumption within economies and across borders.

A transaction cost is a monetary or nonmonetary cost of arranging, carrying out, monitoring, or enforcing an economic exchange.