Are 201- Ch 1-5 Terms

Front 1

__= the study of the allocation of scarce resources

Back 1

economics

Front 2

__= the value of the next best alternative NOT chosen

Back 2

opportunity cost

Front 3

__= graphical representation of production possibilites (PPC/PPF)
- points inside, on, outside the PPC, shifts of the PPC
-shape of PPC linear or bowed out (increasing opportunity cost)

Back 3

production possibilites curve/frontier

Front 4

Movement along a curve occurs when the value of one of the variables on the 2 axis changes. A change in a third variable NOT represented on any of the 2 axis causes the curve to ___

Back 4

shift

Front 5

__= the amt of a good ppl wish to buy decreases as the price of the good increases

Back 5

law of demand

Front 6

__= the amt ppl wish to buy at at a given price

Back 6

quantity demanded

Front 7

__= the relationship between price and quantity demanded
-it gives an amt for each possible price, not single amt for a single price

Back 7

demand

Front 8

__= "all else held constant"

Back 8

ceteris paribus

Front 9

__= when income increases, so does demand (shift out)

__= when income increases, demand decreases (shift in)

Back 9

normal good


inferior good

Front 10

changes in variables others that the price ____ the demand curve, or cause a change in demand. Such variables are income, preferences, price of related goods

Back 10

shift

Front 11

the demand for a good increases, if the price of its ___ increases.

The demand for a good increases if the price of its ____ decreases

Back 11

substitute

complement

Front 12

__= the higher the price, the more firms will be willing to supply

Back 12

law of supply

Front 13

___ shift the supply curve up and to the left, such that the vertical distance btw the old and the new supply curve is exactly the taxx, per unit of the good

Back 13

taxes

Front 14

___ shift the supply curve down and to the right, such that the vertical distance btw the old and the new supply curve is exactly the amt of subsidy per unit of the good.

*remember the taxes/subsidies ALWAYS introduce a wedge btw the producer/consumers prices! but rarely do they change consumer prices by the full amt of the subsidy tax
-exception- when the demand is perfectly inelastic

Back 14

subsidies

Front 15

__= occurs when at the current price, consumers want to purchase more than the firms are willing to supply

Back 15

shortage

Front 16

__= firms want to sell more than the consumers are willing to buy at the current market price

Back 16

surplus

Front 17

__= situation with neither upward/downward pressure on the price

Back 17

market equilibrium

Front 18

__= max price imposed by the gvt (EX: rent control)

Back 18

price ceiling

Front 19

__= a minimum price
imposed by the gvt (ex: minimum wages)

Back 19

price floor

Front 20

__= measures the responsiveness/sensitivity of Quantity demanded (QD) to changes in prices
-answers the question, "by what percentage will QD change for every 1% that price changes, holding all else equal"
-is unit free measure, not the same as slope
-it is always negative
-always uses the midpoint formula to calculate

Back 20

price elasticity of demand/elasticity of demand (ed)

Front 21

equation for the midpoint formula

Back 21

Qnew - Qold
/
(Qnew + Qold/2) divided by Pnew - Pold
/
(Pnew + Pold/2)

Front 22

what makes elasticity elastic/inelastic
unit elastic?

Back 22

elastic- if absolute value of ED >1

inelastic- if 0 < absolute value of ED < 1

unit elastic- if absolute value of ED =1

- the more substitute a good has, the more elastic the demand is
-elasticity of demand is high for good on which ppl spend a large fraction of their income

Front 23

___= amt of $ that producers receive for the sale of some quantity (Q), at some price (P),
= product of price and quantity (P x Q)

-when producer price and consumer price are the same, total revenue equals ______. otherwise they differ by the amt of taxes/subsidies etc

Back 23

revenue/total revenue


total expenditure

Front 24

For ___ demand: when P increases, Q decreases proportionally more than the Increase in P and total revenue (P x Q) declines

Back 24

elastic demand

Front 25

For ____demand: when P increases, Q decreases proportionally less than the increase in P and hence total revenue (PxQ) increases

Back 25

inelastic demand

Front 26

income elasticity of demand ( Eincome) =

Back 26

%change of Q
/
% change income

Front 27

price elasticity of supply is the same as the equation used to find the _______

Back 27

elasticity of demand using the midpoint formula

Front 28

__= satisfaction from consumption of particular good, or preferences for a particular good.
-total of this increases as consumption rises

Back 28

utility

Front 29

__= additional utility/satisfaction from consumption of an additional unit of the good
-declines as more of the good is consumed

Back 29

marginal utility

Front 30

__= combinations of goods the consumer can afford, given the consumers income and prices he/she faces

Back 30

budget constraint

Front 31

__= the act of choosing the combination of goods consumed that gives the highest possible level of utility given the consumer's budget constraint

Back 31

utility maximization

Front 32

to mazimize utility from consumption of 2 goods X and Y you...

Back 32

- consume up to the point when the MU of the last unit of X and Y consumed
-satisfy the following
(MU of x / MU of y) = ( Px / Py)
-spend entire income

Front 33

__= when the price of a good rises, all else constant, consumers purchase less of that good and more of the other goods that are now relatively cheaper

Back 33

substitution effect

Front 34

__= when the price of a good rises, purchasing power/real income falls, and consumers buy less of all normal goods and more of all inferior goods

Back 34

income effect

Front 35

Both substitution and income effect occur whenever the price of a good changes.
-for ___ goods, they work in the same direction on the QD of the good whose price has changed

-for ___ goods, they work in opposite directions.
-the total effect for an inferior good could be an increase or decrease in QD

Back 35

normal goods


inferior goods

Front 36

___= good, whose QD increases whenever its price rises

Back 36

giffen

Front 37

individual demand curve is the person's _____ or marginal willingness to pay curve

Back 37

marginal benefit

Front 38

Utility maximizing consumer will expand consumption of each good to the point at which price equals..

Back 38

the marginal benefit (MB) or marginal willingness to pay

Front 39

___= add up horizontally the individual consumers' demand curves

Back 39

market demand curve

Front 40

___= the difference btw the total willingness to pay and total expenditure on a good (ex: the difference btw MB and the Price) added up over all the units consumed

Back 40

consumer surplus