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57 Cards in this Set

  • Front
  • Back
utility
the pleasure or satisfaction people get from doing or consuming something
total utility
the total satisfaction one gets from consuming a product
marginal utility
refers to the satisfaction one gets from consuming one additional unit of product above and beyond what one has consumed up to that point
principle of diminishing marginal utility
as you consume more of a good, the marginal utility received from each additional unit of the good decreases with each additional unit consumed
analysis of rational choice
analysis of how individuals choose goods within their budget in order to maximize total utility
principle of rational choice
spend your money on those goods that give you the most marginal utility (MU) per (divided by) dollar (price)
you should keep adjusting or spending within your budget if the marginal utility per dollar of the two goods
differs
utility maximizing rule
when the ratios of the marginal utility to price of the two goods are equal
when price of a good goes up
marginal utility per dollar goes down
income effect
the reduction in quantity demanded because we're poorer
substitution effect
the reduction in quantity demanded because relative price has risen
when relative price goes up
quantity purchased decreases even if you're given money to compensate you for the rise
bounded rationality
rationality based on rules of thumb rather than rational choice
rule of thumbs
you get what you pay for, follow the leader, focal point (through luck or advertising a product has become focal points to which people have gravitated)
conspicuous consumption
consumption of goods not for one's direct pleasure but simply to show off to others
ultimatum game
the first person only gets the money if the other person accepts the offer. if the second person does not accept they both get nothing. means people have a sense of fairness
status quo bias
individual's actions are very much influenced by the current situation, even when that reasonably does not seem to be very important to the decision
game theory
formal economic reasoning applied to situations in which decisions are inter dependent
screening questions
a question structured in a way to reveal strategic information about the person who answers
prisoner's dilemma
well known two person game that demonstrates the difficultly of cooperative behavior in certain circumstances
pay off matrix
table that show the outcome of every choice by every player given the possible choices of all other players
non cooperative game
game in which each player is out for himself and agreements are either not possible or not enforceable
cheap talk
communication that occurs before the game is played that carries no cost and is backed up only b trust and not any enforceable agreement. cheap talk does not influence the results
informal game theory
often called behavioral game theory because it relies of empirical observation not deductive logic alone to determine the likely choices of individuals
vickrey auction
sealed bid auction where the highest bidder wins but pays the price bid by the next highest bidder
framing effects
tendency of people to base their choices on how a choice is presented
production
transformation of factors into goods and services
firm
an economic institution that transforms factors of production into goods and services
virtual firms
do not produce anything, they simply subcontract out all production
firms maximize
profit
profit=
total revenue -total cost (P * Q -- TC)
accounting profit
explicit revenue less explicit cost
implicit cost
include the opportunity costs of factors of production provided by the owners of the business. economists include explicit and implicit costs and revenues
total cost
explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm. TC= VC + FC
total revenue
amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm. P * Q
economic profit
explicit and implicit revenue- explicit and implicit cost
long run decision
firm chooses among al possible production techniques
short run decision
firm is constrained in regard to what production decision it can make
in the long run, __
all inputs are variable
in the short run, __
some inputs are fixed
production table
table showing the output resulting from various combinations of factors of production or inputs
marginal product
the additional output that will be forthcoming from an additional worker, other inputs constant
average product
output per worker. output / number of workers
production function
relationship between the inputs (factors of production) and outputs. tells the maximum amount of output that can be derived from a given number of inputs
law of diminishing marginal productivity
as more and more of a variable in put is added to an existing fixed input, eventually the additional output one gets from that additional input is going to fall
fixed costs
costs that are spent and cannot be changed in the period of time under consideration. TC-VC=FC
variable costs
costs that change as output changes. TC-FC=VC
total cost
the sum of fixed and variable costs. VC+FC=TC
total cost
the sum of fixed and variable costs
average total cost
total cost divided by the quantity produced. not the same as total cost. sum of average fixed and variable cost. TC/ Q
averaged fixed cost
fixed cost divided by quantity produced. FC/ Q
average variable cost
variable cost divided by quantity produced. VC/ q
marginal cost
the increase/ decrease in total cost form increasing/decreasing level of output by one unit.
when marginal cost exceeds average cost, __
average cost must be rising
when marginal cost is less than average cost,__
average cost must be falling
when marginal productivity is greater than average productivity,__
then average productivity is rising and vice versa
when marginal cost= average total cost and average variable costs, __
average total cost and average variable cost are at the low point