Microeconomics Cheat Sheet

The core ideas of Microeconomics distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/microeconomics/cheatsheet

Quick Reference

Supply and Demand

The foundational model of microeconomics describing how the price and quantity of a good are determined by the interaction of buyers (demand) and sellers (supply) in a market. Equilibrium occurs where the quantity demanded equals the quantity supplied.

Elasticity

A measure of how responsive the quantity demanded or supplied of a good is to a change in one of its determinants, such as price, income, or the price of related goods. Elastic goods show large quantity changes; inelastic goods show small changes.

Opportunity Cost

The value of the next best alternative forgone when making a choice. Every decision involves a trade-off, and the true cost of any action includes what you give up by not choosing the best alternative.

Marginal Analysis

A decision-making framework that evaluates the additional (marginal) benefit versus the additional (marginal) cost of one more unit of an activity. Rational agents continue an activity as long as marginal benefit exceeds marginal cost.

Market Structures

The classification of markets based on the number of firms, product differentiation, barriers to entry, and pricing power. The four main structures are perfect competition, monopolistic competition, oligopoly, and monopoly.

Consumer Surplus and Producer Surplus

Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. Producer surplus is the difference between what producers receive and the minimum they would accept. Total surplus measures overall market welfare.

Externalities

Costs or benefits of an economic activity that affect third parties who are not directly involved in the transaction. Negative externalities (like pollution) cause markets to overproduce; positive externalities (like education) cause markets to underproduce.

Price Discrimination

The practice of charging different prices to different consumers for the same good or service, based on their willingness to pay. It requires market power, the ability to segment customers, and the prevention of resale.

Game Theory

The study of strategic decision-making where the outcome for each participant depends on the actions of all participants. Key concepts include Nash equilibrium, dominant strategies, and the Prisoner's Dilemma.

Market Failure

A situation where free markets fail to allocate resources efficiently, resulting in a loss of total welfare. Common causes include externalities, public goods, information asymmetry, and market power (monopolies).

Key Terms at a Glance

Allocative Efficiency:A state where resources are distributed such that the marginal benefit to society equals the marginal cost of production.

Average Total Cost:Total cost divided by the quantity of output produced, including both fixed and variable costs per unit.

Budget Constraint:The set of all combinations of goods and services a consumer can afford given their income and prevailing prices.

Complements:Goods that are typically consumed together, where an increase in the price of one leads to a decrease in demand for the other.

Cross-Price Elasticity:A measure of how the quantity demanded of one good responds to a change in the price of another good.

Demand Curve:A graph showing the relationship between the price of a good and the quantity demanded, holding all other factors constant.

Diminishing Marginal Utility:The principle that each additional unit of a good consumed provides less additional satisfaction than the previous unit.

Economic Profit:Total revenue minus total cost including both explicit and implicit (opportunity) costs. Differs from accounting profit.

Equilibrium:The point where quantity demanded equals quantity supplied, resulting in a stable market price with no tendency to change.

Fixed Costs:Costs that do not vary with the level of output, such as rent, insurance, and equipment leases.

Free Rider Problem:When individuals benefit from a resource or service without paying for it, leading to under-provision of public goods.

Income Effect:The change in quantity demanded of a good resulting from a change in purchasing power due to a price change.

Inferior Good:A good for which demand decreases as consumer income rises, such as instant noodles or bus transportation.

Marginal Utility:The additional satisfaction or benefit derived from consuming one more unit of a good or service.

Market Power:The ability of a firm to influence the price of a good or service by adjusting the quantity it produces.

Get study tips in your inbox

We'll send you evidence-based study strategies and new cheat sheets as they're published.

We'll notify you about updates. No spam, unsubscribe anytime.