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15 Cards in this Set

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Perfect compitition
an industry structure in which there are many firms ecah small relative to inductry, producing virtually identical products and in which no firm is large enough to have any control over prices.
perfect knowledge
the assumptions that households possess a knowledge of the qualities and prices of everything availiable in the market and that firms have all available information concerning wage rates, capital costs, and output prices.
households three basic decisions
how much of each product, output or demand

how much labor to supply

how much to spend today and how much to save for the future
budget constraint
the limits imposed on household choices by income, wealth, and product prices
choice set, or oppurtunity set
the set of options that is defined and limited by a budget constraint
utility
the statisfaction or reward a product yeilds relative to its alternatives. The basis of choice
marginal utility
the additional satisfaction gained by the consumption or use of one more unit of something
total utility
the total amount of satisfaction obtained from consumption of a good or service
law of diminishing marginal utility
the more of any one good consumed ina given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good
utility maximizing rule for all pairs of goods
MUx / Px = MUy / Py
comsumer surplus
the difference between the maximum amount a person is willing to pay for a good and its current market price
cost benefit analysis
the formal technique by which the benefits of a public project are weighed againest its costs
labor supply curve
a diagram that shows the quantity of labor supplied at different wage rates. Its shape depends on how households react to changes in the wage rate
finacial capital market
the complex set of institiutions in which suppliers of capital (households that save) and demand for capital (business firms wanting to invest) interact
production
the process by which inputs are combined transformed and turned into outputs