Term
| Marginal Rate of Substitution |
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Definition
| The marginal rate of substitution (MRS) measures how much of x2 you would be willing to give up to get an extra unit of x1. In utility terms, MRS = MU1/MU2 which is the absolute value of the slope of the indifference curve. |
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Term
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Definition
| Two goods x1 and x2 are perfect substitutes if the consumer’s marginal rate of substitution between the two goods is constant. |
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Term
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Definition
| A price-taking firm does not have the ability to individually affect the prevailing price in the market for its output. In a perfectly competitive market, all firms are price takers.As a result, each can sell as much as it produces at the market price. |
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Term
| Marginal Product of Labor |
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Definition
The marginal product of labor measures how much extra output
is produced when the number of workers increases by one (holding all other inputs to production fixed. |
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Term
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Definition
| line showing all possible combinations of inputs that can be purchased for a total given cost |
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Term
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Definition
| function of the form Output=F(Inputs), giving the amount of output a firm can produce from given amounts of inputs using efficient production methods |
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Term
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Definition
| a situation where it is impossible to produce larger output from the same amount of inputs. It implies that inputs are not wasted. |
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Term
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Definition
| Consumer surplus is difference between price paid and marginal willingness to pay summed over all buyers in the market. |
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Term
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Definition
| Variable cost is the part of a firm's cost that varies with output. |
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Term
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Definition
| A point is Pareto preferred if one person can be made better off without anyone being made worse off. |
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Term
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Definition
| An increase in price of good A leads to a decrease in consumption of good A (in other words, demand slopes down) |
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Term
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Definition
| A good is an inferior good if an increase in income reduces demand for the good. |
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Term
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Definition
| When quantity supplied exceeds quantity demanded. |
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Term
| Incidence (or burden) of a Tax |
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Definition
| The incidence of a tax indicates how much of a tax burden is borne by various market participants. |
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Term
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Definition
| We say that demand is inelastic when the elasticity of demand is greater than -1 (that is, between -1 and 0) |
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Term
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Definition
| Budget constraint identifies all of the consumption bundles a consumer can afford, given the prices of all goods and income. |
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Term
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Definition
| A utility function where utility is measured in terms of dollars. In other words, a utility function of the form U(X,M) = u(x)+m, where m is money spent on everything except for x and x is an arbitrary other good. In this case there is a constant marginal utility of money and therefore the utility received from x, is in terms of dollars. |
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Term
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Definition
| Starting with any alternative, an indifference curve shows all the other alternatives that a consumer likes equally well. |
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Term
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Definition
| The opportunity cost of some resource is the value of the best alternative use of that resource. |
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Term
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Definition
| The income effect is the change in the quantity of a good a consumer demands because of a change in income, holding prices constant. |
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Term
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Definition
The MRP of some input factor is the change in revenue due to a unit increase in that input. It is also correct if you say that it is the market
value of the extra product per unit increase of the input. Mathematically, MRPL = pMPL in the case of labor. |
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Term
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Definition
| Consumer surplus is the monetary difference between what a consumer is willing to pay for the quantity of the good purchased and the actual cost of the good. |
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Term
| Diminishing marginal returns |
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Definition
| A good exhibits diminishing marginal returns if the marginal cost of producing the good (that is, the per unit production cost) is increasing in the quantity produced. |
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Term
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Definition
| In the market for a particular commodity, the equilibrium is defined by a price and quantity such that there are no forces acting to increase or reduce the equilibrium price. That is, there is neither a surplus of the good nor a shortage of the good at the equilibrium price. Algebraically, it is the point at which the supply and demand curves intersect. |
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Term
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Definition
| percentage change in the quantity demanded of a good divided by the percentage change in price of the good |
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Term
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Definition
| Something is scarce if it has a value in an alternate use. |
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Term
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Definition
| Two goods are complements (in consumption) if an increase in the price of one leads to a decrease in the consumption of the other holding all else equal. |
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Term
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Definition
| A good is a normal good if an increase in income leads to an increase in consumption of that good. |
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Term
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Definition
| The percentage change in quantity supplied for a one percent change in price |
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Term
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Definition
| the extra increment of utility you receive for the next additional unit you consumed |
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Term
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Definition
| The effect on consumption of a compensated price change. The substitution effect involves a movement along an indifference curve to a point where the slope of the indifference curve is the same as the slope of the new budget line. |
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Term
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Definition
| Two goods such that that if the price of one rises, consumption of the other falls according to a fixed consumption ratio. |
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Term
| Perfectly Competitive Firm |
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Definition
| Firm that is a price taker in input and output markets; It’s too small to affect price; It operates under perfect information. |
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Term
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Definition
| a function of the form Output = f(Inputs), giving the amount of output a firm can produce from given amounts of inputs using efficient production methods. |
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Term
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Definition
| A firm’s Cost Function describes the total cost of producing each possible level of output. It is a function of the form Total Cost = C(Output). |
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Term
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Definition
| These are costs that must be incurred by a firm to have any Q. They do not vary with Q. |
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Term
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Definition
| The difference between what producers supply and the price they actually receive. The level of producer surplus is the area above the supply curve and below the market price. |
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Term
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Definition
| An allocation of resources is Pareto efficient if the only reallocation that could make any person better off would make someone worse off. |
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