# Shared Flashcard Set

## Details

Intro to Eco. Definitions
Leydyard 1st midterm definitions
19
Economics
09/30/2008

Term
Definition
 the ability to produce more of a good in a given amount of time
Term
Definition
 The ability to produce a good with a lower opportunity cost
Term
 Opportunity cost
Definition
 How much of one good you have to give up to produce a unit of the other good.
Term
 Quantity demanded
Definition
 the amount of a good that a buyer is willing and able to purchase at a given price.
Term
 Demand
Definition
 A graph of the relationship between price and quantity demanded.
Term
 Quantity supplied
Definition
 the amount of a good that sellers are willing and able to sell at a given price.
Term
 Supply
Definition
 A graph of the relationship between price an quantity supplied
Term
 Inferior good
Definition
 a good for which, all else equal, a fall in income leads to an increase in demand
Term
 Normal good
Definition
 a good for which, all else equal, a fall in income leads to a decrease in demand
Term
 Substitutes
Definition
 two goods for which an increase in the price of one leads to an increase in the demand for the other.
Term
 Compliments
Definition
 two goods for which an increase in the price of one leads to a decrease in the demand for the other.
Term
 Perfect Substitutes
Definition
 two goods that can be substituted for each other in a specific ratio (straight line indifference curves.)
Term
 Perfect Compliments
Definition
 two goods which must be consumed in a specific ratio together (right angle indifference curves)
Term
 Equilibrium
Definition
 a price (P*) and quantity (Q*) such the QS = QD = Q*.
Term
 Budget Constraint (BC)
Definition
 the limit on the consumption bundles that a consumer can afford.
Term
 Indifference Curves (IC)
Definition
 A curve that shows the consumption bundles that give the consumer the same level of satisfaction.
Term
 Marginal Rate of Substitution
Definition
 The rate at which a consumer is willing to trade one good for another and stay on the same indifference curve.
Term
 Income effect
Definition
 The change in consumption that results when a price change moves a consumer to a higher or lower indifference curve
Term
 Substitution effect
Definition
 The change in consumption that results when a price change moves a consumer to a new point on the same indifference curve to a new Marginal rate of substitution.
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