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39 Cards in this Set
- Front
- Back
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Budget Constraint Graph
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P1X1 + P2X2 = M
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Slope of the Budget Constraint
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Px/Py
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Marginal Utility
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Units of Utility/ Units of the Good
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Marginal Rate of Substitution
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- Marginal Utility of X/ Marginal Utility of Y
OR - Px/Py - This the slope of the indifference curve |
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Optimal Consumption Bundle (Utility Maximization Point)
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MU1/P1 = MU2/P2
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Consumption Behavior when :
MU1/P1 > MU2/P2 |
The buyer would consume more of good 1 to maximize their utility.
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Substitution Effect
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Increase in the price of one good leads consumers to favor the less expensive good.
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Income Effect
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Shifts the budget constraint outward when income increases and shifts the budget constraint inward when income decreases.
If the item is a normal good, more will be bought, and if it is a inferior good, it will be bought less. Increase in income increases purchasing power. |
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Consumer Surplus
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Buyer Reservation Price - Actual Price
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Buyer Reservation Price
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Highest price that a person is willing to spend on a good.
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Profit Maximization
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The goal of all firms. This happens when P* = MC.
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Economic Profit
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Total Revenue - Total Cost
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Short Run Production
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When some of the factors of production are fixed.
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Long Run Production
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All factors of production are variable.
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Total Product
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Total Product = Total Quantity Produced at a given level.
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Marginal Product
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Change in total product given a 1 unit increase in the quantity of the good produced.
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Average Product
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Total Product/ Quantity of Input
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Marginal Product
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Slope of the Product Down
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Total Fixed Cost
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Average Fixed Cost = Average Total Cost - Average Variable Cost
- TFC = AFC X Quantity |
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Average Total Cost
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Average Fixed Costs + Average Variable Costs
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Total Cost
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Total Cost = Total Fixed Cost + Total Variable Cost
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Average Fixed Cost
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Total Fixed Cost/ Quantity
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Average Variable Cost
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Total Variable Cost/ Quantity
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Revenue
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P* x Q*
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Shutdown Point
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When price is lower than the average variable cost.
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Break Even Point
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When the price is equal to the average total cost.
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Production at a loss
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Between the Average Variable Cost and the Average Total Cost.
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Producer Surplus
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Market Price - Seller Reservation Price
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Opportunity Cost
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Loss of Other Good/ Gain in Good You Are Calculating Opp. Cost
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Slope of PPC
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Opp. Cost of Good on X Axis
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1/Slope of PPC
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Opp Cost of Good on Y Axis
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Elasticity of Demand
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% Change in Quantity/ % Change in Price
1/(|Slope of Demand| x (P/Q)) |
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Elasticity 0-1
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Inelastic
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Elasticity of 1
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Unit Elastic
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Elasticity of Greater than 1
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Elastic
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Perfectly Inelastic
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Elasticity = 0
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Perfectly Elastic
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Elasticity = Infinity
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Cross Price Elasticity
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% Change Quantity Good X/ %Change in Price of Good Y
- Complements: Elasticity < 0 -Substitutes: Elasticity > 0 |
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Income Elasticity
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% Change Quantity Demanded/ % Change Income
- Inferior: Elasticity < 0 - Normal: Elasticity > 0 |
