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60 Cards in this Set

  • Front
  • Back
Marginal Rate of Substitution
A measure of the consumer's willingness to trade one good for another.
Perfect Substitute
The willingness to substitue one good for another at some constant rate and remain equally well off. 2 Nickels For 1 Dime
Perfect Complement
Goods that must be consumed in a precise combination to provide satifaction. One Chassiss and four wheels.
Budget Line
Shows the combination of good that can be purchased at the specified prices and assuming that all the income is spent.
Marginal Cost
The cost of consuming one more unit of a good.
Marginal Benefit
The value the consumer derives from consuming one more unit of a good.
Corner Solution
A certain good is not consumed by the consumer because the value of the first unit is less than the cost. Porsche Vs. Gucci
Composite Good
Y = All other goods.
Inferior Good
A good that the consumer will purchase less of as his income rises.
Total Utility
The total satisfaction a consumer receives from a given level of consumption
Marginal Utility
The amount by which total utility rises when consumption increases by one unit.
Diminishing Marginal Utility
As more of a good is consumed, the marginal utility tends to decline.
Line of Equal Satisfaction Anywhere you are on this function is measured as the same.
Law of Substitution
Law of Diminishing Utility
Reality of Personal Preference
Two lines approaching but never intersecting
More is preferred to less
A > B > C, then A > C
Indifference Curve
Shows how much of one good it takes to make us ambivalent to trade with a given amount of some other good.
Francis Ysidro Edgeworth
Exceptions to Indifference Curve
Linear Curve
Right Angle
Wiggly line
Draw Right Angle Indifference Curve
Perfect Complements
One Chassis and four wheels.
Draw a Linear Indifference Curve
Perfect Substitutes
Hard coal/Soft Coal
Draw a concave indifference curve
Heroin/Alcoholic addiction
Demand is a function of?
Supply is a function of?
Quantity Demanded is a function of?
Quantity Supplied is a function of?
Price is?
Price is an equilibrium of Quantity supplied and Quantity demanded.
What is the inflection point of Variable Cost Curve?
Law of diminishing returns
Left of this point is area of decreasing marginal costs. To the right is the area of increasing marginal returns.
Are TC and VC curves always the same distance apart?
True. Fixed Costs.
Minimum Average cost is where you want to produce?
True. You're optimizing production at lowest costs.
Investors want you to produce at minimum average cost point?
False. They want minimum marginal cost point. Lowest cost for them. That leaves room for your competitors. Monopolies want to produce here.
How do you change supply
Change size of factory
Technology advancement
Increase/Decrease raw materials
increase/decrease sales tax
Elasticity of Supply is about demand? T/F
False. Elasticity of Supply is about quantity.
Quantity a function of price?
What must be true to stop trade and have tarriffs work?
Both the Supplier and seller have to be relatively elastic.
Tarriffs work if demand is inelastic?
Tariffs work if supply is inelastic?
Tax incidence falls mostly upon the group that responds least to price?
If Demand is totally inelastic who pays the tax?
The buyer. Remember salt example.
If Demand is totally elastic who pays the tax?
The Seller pays.
IF supply is totally inelastic who pays the tax?
The seller pays. Price Taker.
If supply is a totally elastic who pays the tax?
The buyer. Price maker.
Caveat Emptor
Let the buyer beware. In economics, this term encapsulates the essence of the market system i.e. that everyone must be responsible for his or her own economic decisions
Perfect Competition no single firm can significantly affect the market price?
Pareto called it the welfare triangle. Marshall called it?
Consumer surplus. In an monopoly, that is what the monopolist is trying to capture.
Who rules in the long run?
Perfect Competitor.
Who rules in the short run?
THe monopolist.
As price falls, does the welfare triangle increase or decrease?
The MC function intersects the minimum point of what?
Minimum average Cost.
Monopolist Want what?
Prices Up
Quantity Down
Consumer surplus down,
Avg. Cost Down
Excess Profit Up
When MR is zero, TR is what?
A monopolist point of operation would most likely operate in what area of elasticity on the demand curve?
Relatively elastic.
If the MU/P ratio standard falls below the potential buyer's standard, does he buy?
Both the willingness and the ability to purchase at the current market price is called?
Effect Demand
An increase in price will cause the MU?/P ratio to?
An increase in price followed by an increase in quantity demanded is called?
conspicuous consumption
Conspicous consumption represents
reverse subsitution
The absence of close substitutes tends to decrease the elasticity of demand?
Verbally describe the elasticity at the midpoint of a linear demand line which extends to both axes?
unit elastic
Name three degrees of price discrimination?
1st degree Perfect Price, 2nd Quantity Discounts, 3rd degree market separation.