Econ Test 1

Front 1

Marginal Utility and (positive, negative)

Back 1

The additional satisfaction a consumer gains from consuming one more unit of a good or service. determines how much a consumer will buy.
Positive: when the consumption of an additional item increases the total utility.
Negative: when the consumption of an additional item decreases the total utility.

Front 2

Marginal Rate of Subsitution

Back 2

In economics, the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of utility.

Front 3

Indifference Curve

Back 3

In microeconomic theory, an indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another.

Front 4

Marginal Rate of Subsitution MRS Formula

Back 4

MRS=CHANGE IN Y/CHANGE IN X

Front 5

Opportunity cost of activity

Back 5

The value of all that must be sacrificed to do X

Front 6

Reservation price of activity X

Back 6

The price at which a person would be in different between doing X and not doing X

Front 7

Marginal cost

Back 7

The increase in total cost that results from carrying out one additional unit of an activity

Front 8

Marginal benefit

Back 8

The increase in total benefit that results from carrying out one additional unit of an activity

Front 9

Average Cost

Back 9

The activity costs of undertaking n units of an activity is the total cost of the activity divided by n

Front 10

Average benefit

Back 10

The average benefit of undertaking n unit of an activity is the total benefit of activity divided by N

Front 11

External cost of an activity

Back 11

A cost that falls on people who are not directly involved in the activity

Front 12

Normative Question

Back 12

A question about what policies or institutional arrangements leave to best outcome

Front 13

Positive Question

Back 13

A question about the consequences of specific policies or institutional arrangements

Front 14

Real Price of a Product

Back 14

Its price relative to the prices of other goods and services

Front 15

Law of Demand

Back 15

The empirical observation that when the price of a product falls, people demand larger quantities of it.

Front 16

Excess supply

Back 16

The amount by which quantity supplied exceeds quantity demanded

Front 17

Law of supply

Back 17

The empirical observation that when the price of a product rises firms offer more of it for sale

Front 18

Excess demand

Back 18

The amount by which quantity demanded exceeds quantity supplied

Front 19

Price ceiling

Back 19

Level above which the price of a good is not permitted by law to rise.

Front 20

Price floor

Back 20

A minimum price for a good, established by law, and supported by governments offer to buy the good at that price.

Front 21

rationing function of price

Back 21

the process whereby price direct existing supply of a product to the users who value it most highly

Front 22

allocative function of price

Back 22

The process whereby price acts as a signal that guides resources away from the production of goods whose prices lie below cost towards the production of good whose prices exceed cost

Front 23

bundle

Back 23

a particular combination of two or more goods.

Front 24

Budget constraint

Back 24

The set of all bundles that exactly exhaust the customers income at given prices also called the budget line

Front 25

Affordable set

Back 25

Bundles on or below the budget constraint; bundles for which the required expenditure at given prices is less than or equal to the income available.

Front 26

Composite good

Back 26

In a choice between good X and numerous other goods, the amount of money the consumer spends on those other goods.

Front 27

preference ordering

Back 27

A ranking of all possible consumption bundles in order of preference.

Front 28

Indifference curve

Back 28

A set of bundles among which the consumer is indifferent

Front 29

Indifference map

Back 29

A representation sample of the set of consumers indifferent curve, used as a graphical summary of her preference ordering.

Front 30

Marginal rate of substitution

Back 30

At any point on the indifference curve, the rate at which the consumer is willing to exchange the goods and measured along the vertical axis for the good measured along the horizontal axis . Equal to the absolute value of the slope of the indifference curve.

Front 31

Best affordable bundle

Back 31

The most preferred bundle of those that are affordable

Front 32

Corner solution

Back 32

In a choice between two goods, a case in which the consumer does not consume one of the goods.

Front 33

price-consumption curve (PPC)

Back 33

Holding income and the price of Y constant , the PCC for good X is the set of optimal bundles traced on an indifference map as a price of X varies.