Ch 1 The Market

Question 1

Model

Answer 1

Simplified representation of reality

Question 2

Exogenous variable

Answer 2

Determined by factors not discussed in the model

Question 3

Endogenous variable

Answer 3

Determined by forces described in the model

Question 4

Optimization principle

Answer 4

People try to choose the best patterns of consumption that they can afford

Question 5

Equilibrium principle

Answer 5

Prices adjust until the amount that people demand of something is equal to the amount that is supplied

Question 6

Demand curve

Answer 6

Relates quantity demanded to price

Question 7

Supply curve

Answer 7

Relates quantity supplied to price

Question 8

Equilibrium price

Answer 8

Price where quantity demanded equal quantity supplied

Question 9

Comparative statics

Answer 9

Comparing two static equilibria without worrying about how the market moves from one equilibrium to another

Question 10

Pareto improvement

Answer 10

Some people better off without making anyone worse off

Question 11

Pareto efficient

Answer 11

Nobody can be made better off without making another worse off