# Shared Flashcard Set

## Details

Exam 2
Chapters 6-10
23
Economics
11/17/2008

Term
 Total Utility
Definition
 total satisfaction a consumer derives from consumption; it could refer to either the total utility of consuming a particular good or the total utility of all consumption
Term
 Marginal Utility
Definition
 Change in total utility derived from a 1-unit change in consumption of a good
Term
 Law of Diminishing Marginal Utility
Definition
 More of a good a person consumes per period, the smaller the increase in total utility from consuming 1 more unit
Term
 Consumer Equilibrium
Definition
 condition in which an indiviual consumer's budget is spent and the last dollar spent on each good yields the same marginal utility; therefore, utility is maximized
Term
 marginal valuation
Definition
 the dollar value of the marginal utility derived from consuming each addition unit of a good
Term
 Consumer Surplus
Definition
 difference between the max amount that a consumer willing to pay for a given quantity of a good and what the consumer actually pays
Term
 Indifference Curve
Definition
 shows all combinations of goods that provide the consumer with the same satisfaction or the same utility (the consumer finds all combos on a curve equally preferred)
Term
 Marginal Rate of Substitution
Definition
 The number of "A" you are willing to give up to get more of "B", neither gaining nor losing utility in the process
Term
 The Law of Diminishing Rate of Substitution
Definition
 States that as your consumption of "A" increases, the amount of "B" you are willing to give up to get another "A" declines.
Term
 Indifference Map
Definition
 A graphical rep of a consumer's taste. Each curve reflects a different level of utility.
Term
 Properties of Indifference Curve
Definition
 1 - A particular indifference curve reflects a constant level of utility, so the consumer is indifferent about all consumption combos along a given curve, combos are equally attractive2 - if total utility is to remain constant, an increase in the consumption of 1 good must be offset by the decrease in consumption of the other good, so each indifference curve slopes downward3 - because of the law of diminishing marginal rate of substitution, indifference curves bow toward the origin4 - higher indifference curvers represent higher levels of utility 5 - indifference curvers do not intersect
Term
 Budget Line
Definition
 Depicts all possible combos given the object's prices and your budget
Term
 Utility Maximization
Definition
 You can achieve this and get the most of your money by spending all of it. When the indifference curve is tangent to the budget line (spending whole budget).
Term
 Willingness to Pay
Definition
 Max price at which he or she will buy that good
Term
 Cost
Definition
 The lowest price at which he or she is willing to sell a good
Term
 Explicit Cost
Definition
 Opportunity cost of resources employed by a firm that takes the form of cash payments
Term
 Implicit Cost
Definition
 Firm's opportunity cost of using its own resources or those provided by its owners without a corresponding cash payment
Term
 Economic Profit
Definition
 Firm's total revenue minus its explicit and implicit costs
Term
 Normal Profit
Definition
 Accounting profit earned when all resources earn their opportunity cost
Term
 Accounting Profit
Definition
 Total revenue minus explicit costs
Term
 Variable Resources
Definition
 any resource that can be varied in the short run to increase or decrease production
Term
 Fixed Resource
Definition
 Any resource that cannot be varied in the short run (machines)
Term
 Short Run
Definition
 Period during which at least one of the firm's resources are fixed
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