Chapter 2 Flashcards
Substitute good
Alternative products whose demand increases when the price of the focal product rises
Complementary goods
Commplements in consumption whose demand decreases when the price of the focal product rises
Demand function
A relationship between quantity demanded and all the determinants of demand
Demand curve
Relationship between quantity demanded and price, holding all other factors constant - changes in price move ALONG the demand curve
Marginal utility
The underlying driver for the demand curve, determines the maximum price consumers are willing to pay for each additional unit of consumption on the demand side of the market
Supply function
A relationship between quantity supplied and all the determinants of supply
- product price, input prices, regulatory costs, and taxes or subsidies are among the key determinants
Supply curve
A relationship between quantity supplied and product price holding all other factors constant - changes in price move along the curve.
Marginal cost
The underlying driver for the supply curve, variable cost at margin determines minimum asking price producers are willing to accept for each additional unit supplied
Market prices
Determined jointly ny market demand and supply curves
Marginal analysis
Compares the additional benefits from a decision to the additional costs incurred - concerned with the change in some performance measure associated with one unit change in a choice variable
- dY/dX
Net Present Value*
PV = present value of future returns - initial outlay
PV = present value / (1 + i)^t
i = discount rate
t = time
Risk
a decision-making situation in which there is variability in possible outcomes, and the probabilities of the outcomes can be specified by the decision maker
Probability
% chance that an outcome will occur
Expected value
A weighted average of possible outcomes, where the weights are probabilities of respective outcomes
Expected Value*
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