Midterm Vocabulary
Terms
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- normal good
- Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
- (accounting vs )economic profit
- The difference between total revenue and total cost. Accounting doesn't take in to account normal rate of return.
- profit maximization
- MC = MR
- Production function
- A numerical or mathematical expression of a relationship between inputs and outputs. It shows units of total product as a function of units of inputs.
- income elasticity of demand
- %change in quantity demanded / % change in income
- consumer surplus
- The difference between the maximum amount a person is willing to pay for a good and its current market price.
- shifts in budget constraints
- The budget constraint is defined by income,wealth,and prices. Within those limits, households are free to choose, and the household's ultimate choice depends on its own likes and dislikes.
- (the) total surplus
- Consumer and producer surplus.
- equilibrium price and quantity
- The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.
- opportunity cost
- The best alternative that we forgo,or give up,when we make a choice or a decision.
- substitute(s)
- Goods that can serve as replacements for one another; when the price of one increases, demand for the other goes up.
- Total Cost
- The total out-of-pocket costs, normal rate of return on capital, and opportunity cost of each factor of production.
- producer surplus
- The difference between the current market price and the full cost of production for the firm.
- factors that affect elasticity
- P up -> Qd down P down -> Qd up
- price floors
- A minimum price below which exchange is not permitted.
- complements
- Goods that "go together"; a decrease in the price of one results in an increase in demand for the other, and vice versa.
- (the law of) diminishing marginal utility
- The more of any one good consumed in a given period, the less satisfaction (utility) generated by consuming each additional (marginal) unit of the same good
- income elasticity of demand
- Measures the responsiveness of demand to changes in income.
- PPF('s)
- A graph that shows all the combinations of goods and service that can be produced if all of society's resources are used efficiently.
- Short run
- the period of time for which two conditions hold: The firm is operating under a fixed scale (fixed factor) of production, and firms can neither enter nor exit an industry.
- budget constraints
- The limits imposed on household choices by income, wealth, and product prices.
- comparative advantage
- the principle that explains how trade can benefit all parties involved (countries, regions, individuals and so on), as long as they produce goods with different relative costs.
- quantity demanded
- The amount (number of units) of a product that a household would buy in a given period if it could buy all it wanted at the current market price.
- changes in equilibrium
- When supply and demand curves shift,the equilibrium price and quantity change
- inferior good(s)
- Goods for which demand tends to fall when income rises
- law of diminishing returns
- When additional units of a variable input are added to fixed input after a certain point, the marginal product of the variable input declines.
- cross-price elasticity of demand
- The ratio of the percentage of change in quantity demanded to the percentage of change in price; measures the responsiveness of quantity demanded to changes in price
- elasticity of supply
- A measure of the response of quantity of a good supplied to a change in price of that good. Likely to be positive in output markets.
- utility
- The satisfaction, or reward, a product yields relative to its alternatives, The basis of choice.
- demand
- The negative relationship between price and quantity demanded; As price rises, quantity demanded decreases. As price falls, quantity demanded increases.
- marginal utility
- The additional satisfaction gained by the consumption or use of one more unit of something.
- supply
- The positive relationship between price and quantity of a good suplied: An increase in market price will lead to an increase in quantity supplied, and decrease in market price will lead to a decrease in quantity supplied.
- price elasticity of demand
- A measure of the response of the quantity of one good demanded to a change in the price of another good.
- (the) midpoint formula
- A more precise way of calculating percentages using the value halfway between P1 and P2 for the base in calculating the percentage change in price, and the value halfway between Q1 and Q2 as the base calculating the percentage change in quantity demanded.
- price ceilings
- A maximum price that sellers may charge for a good, usually set by the government.
- Total revenue (price elasticity)
- P * Q =
- the optimum condition
- maximize utility for income
- quantity supplied
- The amount of a particular product that a firm would be willing and able to offer for sale at a particular price during a a given period.
- elasticity of supply
- %change in quantity supplied / % change in price
- marginal product
- the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
- Long run
- The period of time for which there are no fixed factors of production: Firms can increase or decrease the scale of operation, and new firms can enter and existing firms can exit the industry.