Term
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Definition
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Term
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Definition
| the satisfaction a consumer obtains from the consumption of a good or service |
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Term
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Definition
-Utility is measured in utils
-we CANNOT compare the utils assigned to a good by multiple people
-we CAN compare the utils assigned to multiple goods by one person |
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Definition
The total satisfaction a person derives from comsuming some specific quantity; TU increases as Qd increases;
TU=ΣMU |
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Definition
The additional utility a consumer derives from an additional unit of a good
MU=ΔTU |
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Definition
As Qd rises, MU falls
(As MU falls, willingness to pay falls as well) |
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Term
| When do we stop buying stuff? |
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Definition
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Term
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Definition
line that shows the different consumption bundles a consumer can purchase with a specific money income
(the price of a consumption bundle cannot exceed consumer's total income) |
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Definition
| the combination of goods and services consumed by an individual |
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Definition
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Opportunity cost of X
(formula) |
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Definition
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Term
| Factors that change the budget line |
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Definition
1. Income
2. Price of Y
3.Price of X
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Definition
The good that gives us the most marginal utility per dollar
MU/P |
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Term
| Utility maximization rule (consumer equilibrium) |
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Definition
TU is maximized when:
1. All income is spent
2. MUx/Px=MUy/Py |
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Term
| Optimal consumption bundle |
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Definition
| the bundle that maximizes total utility |
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Term
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Definition
| a line that shows the consumption budles that yield the same amount of total utility |
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Term
| Properties of (most) indifference curves |
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Definition
1. IC's are downward sloping
2. IC's farther from the origin represent a greater level of TU
3. IC's never cross
4. IC's are bowed inward |
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Term
| Calculating the slope of IC's |
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Definition
slope= ΔQy/ΔQx
OR
(along an IC) -MUx/MUy |
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Term
| Marginal rate of substitution |
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Definition
the ratio of the marginal utility of one good to the marginal utility of another;
MRs=MUx/MUy |
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Term
| Principle of diminishing MRs |
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Definition
The more of good x a person consumes in proportion to good y, the less y the consumer is willing to substitute for x
MRs decreases as Qx increases |
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Term
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Definition
The ratio of the price of one good to the price of the other;
RP=Px/Py |
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Term
Optimal bundle
(formula in terms of RP) |
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Definition
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Term
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Definition
at the optimal consumption bundle,
MRs=RP |
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Term
| Special indifference curves |
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Definition
Perfect substitutes
Perfect complements |
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Term
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Definition
| goods for which the marginal rate of substitution is constant, no matter how much of each is consumed |
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Term
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Definition
| Goods that a consumer will consume in the same ratio regardless of their relative price |
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Term
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Definition
| Total revenue- Total cost |
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Term
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Definition
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Term
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Definition
1. Accounting- ∏=TR-explicit cost
2. Economic- ∏= TR-economic cost |
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Term
Economic cost
(used in economic profit) |
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Definition
| includes the implicit cost, which for a producer is the forgone income from employing resources in their next best use |
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Term
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Definition
1. the firm is doing just as good as it could in another industry
2. Accounting profit=implicit cost
3. Economic profit=$0 |
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Term
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Definition
| an amount of time insufficient to allow plant capacity to vary. Also, firms can shut down production, but they cannot exit the market. |
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Definition
| the size of the building and amount of capital equipment |
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Term
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Definition
| all costs are variable, entry and exit are possible |
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Term
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Definition
Fixed
Variable
Total
Avg fixed
Avg variable
Avt total
Marginal |
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Term
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Definition
1. Cannot be varied in the SR
2. Do not change as output changes
3. Still exist when output falls to zero
4. Usually associated with capital |
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Term
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Definition
| Costs that change as output changes; go to zero during shutdown |
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Definition
| Total fixed+total variable |
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Definition
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Definition
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Definition
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Definition
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Term
Law of diminishing (marginal) returns
LDMR |
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Definition
| as successive units of a variable resource are added to a fixed resource, the marginal product of the variable resource eventually decreases |
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| Marginal product of labor |
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Definition
The additional output produced by one more unit of a variable imput;
MPl=ΔQ/ΔL |
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Definition
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| Economies of scale/increasing returns of scale |
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Definition
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Term
| Diseconomies of scale/ decreasing returns to scale |
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Definition
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Term
| Factors that shift LR cost curves |
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Definition
1. input prices- input prices and cost curves move together
2. regulation/taxes- taxes and cost move together
3. technology- as technology improves, costs fall |
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