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42 Cards in this Set
- Front
- Back
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Utility
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The pleasure or satisfaction people get from doing or consuming something.
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Total Utility
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The total satisfaction one gets from consuming a product.
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Marginal Utility
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The satisfaction one gets from consuming one additional unit of a product above and beyond what one has consumed up to that point.
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Principle of Diminishing Marginal Utility
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As you consume more of a good, after some point, the marginal utility recieved from each additional unit of a good decreases with each additional unit consumed, other things equal.
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Principle of Rational Choice
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Spend your money on those goods that give you the most marginal utility (MU) per dollar.
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Utility-Maximizing Rule
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When the ratios of the marginal utility to price of the two goods are equal.
If MUx/Px = MUy/Py, you're maximizing utility. |
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Income Effect
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The reduction in quantity demanded because we're poorer.
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Substitution Effect
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The reduction in quantity demanded because relative price has risen.
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Conspicuous Consumption
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The consumption of goods not for one's direct pleasure, but simply to show off to others.
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Behavioral Economics
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The study of economic choice that is based on realistic psychological foundations.
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Ultimatum Game
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The first person only gets the money if the other person accepts the offer. If the second person does noe accept, they both get nothing.
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Status Quo Bias
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An 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.
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What two key factors determine what people do in the market?
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1) Pleasure: Economic Utility.
2) Price: Provides incentive, and ultimetly guides the invisible hand and the market. |
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What is the Total and Marginal Utility of Eating 5 slices of pizza if:
1st Slice= 12 utiles 2nd Slice= 10 utiles 3rd Slice= 8 utiles 4th slice= 6 utiles. |
Total Utility= The Sum= 12+10+8+6= 36
Marginal Utility= The Changing consumption levels. Thus it is: 2 Slices= 10 3 Slices=8 4 Slices=6 |
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How do the graphs of Total Utility and Marginal Utility Deffer?
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Total Utility= Increases until the level of utility gained is zero.
Marginal Utility= Decreases, because as you increase the amount of something the utility that you gain from it decreases from the orginal utlity you gain. However when you reach the max utility from something, marginal utility is zero, and then it goes down to the negatives after that. |
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What does the Maximization of Utility Rule not state?
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That consumers must consume until their utility as at 0, because nobody has enough money to consume everything they want, rather they aim to maamize their utility.
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How is the maximizing utility principle applied to the law of demand?
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As price increases and the maximum utility reached from that product decreases, thus the demand goes down and we buy less of that product to reach the maximum utility equilibrium!
Likewise, as the price decreases, the maximum utility reached increases, thus the demand goes up and we buy more to reach the maximum utility equilibrium! |
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Substituion Effect
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When the relative price of a good goes up, the quantity purchased of that good decreases, even if you're given money to compensate you for the rise.
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Of the two "effects" which impacts the law of demand?
-Income Effect -Substitution Effect |
*Substitution Effect= When the relative price of a good goes up, the quanitity purchased of that good decreases, even if you're given money to compensate you for the rise.
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In supply decisions, what are you giving up?
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Your time, your land, or some other factor of production.
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What is the "really need" terminology referring to?
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"Really need"=utility. The more you "really really need" something, the higher its marginal utility.
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What is one example of a rule of thumb method to economic thinking?
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"You get what you pay for". Assuming that the higher the price the better the quality, the lower the price the worst the quality.
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Another rule of thumb method?
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Follow the leader. Can lead to focal point equilibria= When a set of goods is consumed strickly b/c it has become popular (famous ppl use it).
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What are tastes influenced mainly by?
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Society, the ability to show off to others, the country your from, etc...
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Are personal needs every met?
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NO!!! Because somehow, whenever a need is met, it's replaced by a want, which is soon becomes another need.
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Production
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That transformation of factors into goods and services.
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Firm
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An economic institution that transforms factors of production into goods and services.
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What does a firm do?
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1) Organizes factors of production
2)Produces goods 3)Sells produced goods to individuals, businesses, or government. |
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Profit
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Total revenue - Total Cost
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Total Cost
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The amount a firm recieves for selling its product or service plus any increases in the value of the assets owned by the firm.
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Economic Profit
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(Explicit and implicit revenue) - Explicit and implicit cost)
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Long Run Decisions
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A firm chooses among all possible production techniques.
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Short Run Decisions
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The firm is constrained in regard to what production decisions it can make.
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Production Table
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A table showing the output resulting from various combinations of factors of production or inputs.
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Marginal Product
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The additional output that will be forthcoming from an additional worker, other inputs constant.
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Average Product
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Output per worker.
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Production Function
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The relationship between the inputs (factors of production) and outputs.
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Law of Diminishing Marginal Productivity
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As more and more of a variable input is added to an existing fixed input, eventually the additional output one gets from that additional input if going to fall.
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Fixed Cost
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Costs that are spent and cannot be changed in the period of time under consideration.
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Variable Costs
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Costs that change as output changes.
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Total Costs
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Total Costs= Variable Cost + Fixed Costs
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Average Total Cost
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Total cost divded by the quantity produced.
ATC= TC/Q |
