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Glossary of AREC 250 midterm 2

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Created by domenida

Utility
-the satisfaction people derive from their consumption activities
marginal utility
-the additional utility gained from consuming an additional unit of a good
law of diminishing marginal utility
-tendency for the additional utility gained from consuming an additional unit of a good to decrease as the total number of units consumed increases
Rule for consumption of a single good
-consume until marginal utility is negative
consumption rule for multiple goods (rational spending rule)
-spending should be allocate across goods so that the marginal utility per dollar is the same for each good
substitution effect
-when the price of a good goes up, people tend to buy other goods instead
income effect
-when the price of a good goes up, a person is unable to buy as many units with a given income
market demand
-the schedule telling us how many units will be purchased by a group of buyers at each price
market demand curve is derived by...
-horizontal addition
consumer surplus
-the most that buyers would willing to pay for the total quantity of a good minus what they actually have to pay
-the area under the demand curve and above the price
indirect benefits
-benefits the environment provides through its role in the production of other goods
direct benefits
-benefits the environment provides directly to individuals
use values
-benefits derived from direct interaction with the environment
-recreation
non-use values
-benefits derived without direct interaction with the environment
-peace of mind
market goods
-goods that are traded in markets and therefore have observed prices and quantities
non-market goods
-good that are not traded in markets and therefore do not have observed prices and quantities
valuation of market goods
-derive demand curve from observed prices and quantities
valuation of non-market goods
-revealed preference approaches (behavior in markets)
-stated preferences approaches (hypothetical surveys)
contingent valuation method
-asked to state their willingness to pay for a non-market good
travel cost method
-willingness to pay to visit recreational sites is based on observed travel expenditures
hedonic price models
-decomposes prices for market goods that embody non-market environmental goods
perfectly competitive market
-market in which no individual supplier has significant influence on the market price of the product
law of diminishing returns
-when some factors of production are fixed, increased production of the good eventually requires ever-larger increases in the variable factor
fixed costs
-costs that must be paid for at any level of output
variable costs
-the sum of all payments made to all variable factors of production (wages)
marginal costs
-change in total cost divided by the change in output
average total costs
-total cost divided by total output
average variable cost
-variable cost divided by total output
profit maximization rule
-output where price equals marginal cost
supply curve
-marginal cost is above average variable costs
producer surplus
-area above supply line and below price
socially optimal quantity
-equilibrium point of demand and supply curves

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