Micro Econ Chs 1-5

Front 1

microeconomics

Back 1

branch of economics that deals with behavior of indivudal economic units, consumers, firms, workers and investors.

Front 2

market

Back 2

collection of buyers and sellers that through their actual or potential interactions determine the price of a product or set of products.

Front 3

arbitrage

Back 3

practice of buying at a low price at one location and selling at a higher price at another

Front 4

extent of market

Back 4

boundaries of a market, both geographical and in terms of products produced and sold within it.

Front 5

market definition

Back 5

Determination of the buyers, sellers, and range of products that should be included in a particular market..

Its important because a company must understand who its acutal and potential competitors are for various products that it sells or might sell in the future. Its also important for public policy decisions.

Front 6

nominal price

Back 6

absolute price of a good, unadjusted for inflation.

Front 7

real price

Back 7

Price of a good relative to an aggregate mesaure of prices, price adjusted for inflation

Front 8

CPI

Back 8

measures of the aggregate price level. Measures the rate of inflation in an economy.

Front 9

Producer Price Index

Back 9

Measure of the aggregate price level for intermediate products and wholesale goods. Shows prices changing at the wholesale level over time.

Front 10

supply curve

Back 10

Relationship between the qty of a good that producers are willing to sell and the price of the good.

Front 11

demand curve

Back 11

relationship between the qty of a good that consumers are willing to buy and the price of the good.

Front 12

substitutes

Back 12

two goods for which an increase in the price of one leads to an increase in the qty demanded of the other

Front 13

complements

Back 13

two goods for which an increase in the price of one leads to a decrease in the qty demanded for the other

Front 14

equilibrium

Back 14

price that equates the qty supplies to the qty demanded.
Market Mechanism is the tendency in a free market for price to change until the market clears.

Front 15

elasticity

Back 15

percentage change in one variable resulting from a 1 percent increase in another

Front 16

price elasticity of demand

Back 16

percentage change in qty demanded of a good resulting from a 1 percent increase in its price.

Front 17

Cross Price Elasticity of Demand

Back 17

Percentage change in the qty demanded of one good resulting from a 1-percent increase in the price of another.

If the result is positive the two goods are substitutes and if its negative they are complements.

Front 18

price elasticity of supply

Back 18

Percentage change in qty supplied resulting from a 1-percent increase in price

Front 19

point elasticity of demand

Back 19

Price elasticity at a PARTICULAR point on the demand curve

Front 20

cyclical industries

Back 20

Indutries in which sales tend to magnify cyclical changes in the gross domestic product and national income.

Front 21

theory of consumer behavior

Back 21

description of how consumers allocate incomes among different goods and services to maximize their well-bring

Front 22

indifference curve

Back 22

Curve representing all combinations of market baskets that provide a consumer with the same level of satisfaction.

Front 23

Indifference map

Back 23

Graph containing a set of indifference curves showing that market baskets among which a consumer is indifferent.

Front 24

Marginal Rate of Substitution

Back 24

maximum amount of a good that a consumer is willing to give up in order to obtain one additional unite of another good.

Front 25

utility function

Back 25

formula that assigns a level of utility to indivudal market baskets

Front 26

ordinal utility function

Back 26

utility function that generates a ranking of market baskets in order of most to least preferred

Front 27

budget constraints

Back 27

constraings that consumers face as a result of limited incomes.

Front 28

corner solution

Back 28

situation in which the marginal rate of substituion of one good for another in a chosen market baseket is not equal to the slope of the budget line.

Front 29

equal marginal principle

Back 29

principle that utility is maximized when the consumer has equalized the marginal utility per dollar of expenditure across all goods.

Front 30

Price consumption curve

Back 30

Curve tracing the utility maximizing comboinations of two goods as the price of one changes.

Front 31

indiviudal demand curve

Back 31

Curve relating the qty of a good that a single consumer will buy to its price.

Front 32

income consumption curve

Back 32

curve tracing the utility maximizing combinations of two goods as a consumers income changes.

Front 33

substitution effect

Back 33

Change in consumption of a good associated with a change in its price, with the level of utility held constant.

Front 34

income effect

Back 34

Change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant.

Front 35

Giffen Good

Back 35

Good whose demand curve slopes upward because the income effect is larger than the substitution effect.

Front 36

market demand curve

Back 36

curve relating the qty of a good that all consumers in a market will buy to its price

Front 37

expected value

Back 37

probablity weighted average of the payoffs associated with all possible outcomes

Front 38

reference point

Back 38

The point from which an indivudal makes a consumption decision

Front 39

endowment effect

Back 39

Tendency of individuals to value an item more when they own it than when they do not. (arizona cup example)

Front 40

anchoring

Back 40

Tendency to rely heavily on one prior piece of information when marking a decision

Front 41

loss aversion

Back 41

people to prefer avoiding losses over acquiring gains. People afraid to sell stocks at a loss.

Front 42

Small # Bias

Back 42

People over estimate their chances of winning lotter. People scared of flying and drive all the time even though its safer to fly than to drive, but plane crashes are reported more widely on the news.