Chapter 4 Flashcards
Complete Market Demand Function
Tell us the quantity that consumers are willing and able to buy at all alternative market prices under all market conditions
Ceteris Paribus
All other variables held constant
Single market demand function
Tell us the quantity that consumers are willing and able to buy at all alternative market prices, ceteris Paribus
Buyers reservation price
The last price a consumer will purchase a good
Law of demand
Generally, there is an inverse or negative relationship between the quantity of (x) consumers are willing and able to buy and the price, c.p.
Law of diminishing marginal utility
If we take an individual consumer and a bundle of quantities of a good, over the relevant range, marginal utility received will be positive but declining as units of consumption increase
Utility
Satisfaction that a consumer receives from consuming a good
Total utility
Total satisfaction received from consuming a certain quantity of a good
Marginal utility
Extra utility that is brought about by the addition of one more unit of the good, the value of the marginal ________ is the same as the slope of the total ______ curve
Income effect
A price increase of good (x) will decrease the relative income (purchasing power) of consumers
Substitution effect
As the price of good (x) rises, consumers will purchase more of the substitute good (w)
Veblin effect
(Conspicuous consumption) social status attached to the product
Given good- 2 conditions
- people have to be poor and the item is the cheapest (potato famine)
- being priced out of the market for everything else
Normal good
If a consumer makes more money, they would purchase more of this good
Inferior good
If a consumer makes more money, they purchase less of this good
Complete market supply function
Tells us the quantity of a good that producers would be willing and able to supply at Ll alternative market prices and all alternative market circumstances
Single market supply function
Tells us the quantity of a good that producers would be willing and able to supply at all alternative market prices and ceteris Paribus
Law of supply
Gives instruction to draw supply curve, there is a direct or positive relationship between the quantity of a good supplied and the price in short run
Short run
A period of time so short that the firm cannot change all inputs by the same proportion, capital is fixed in short run
Long run
A period of time in which a firm could vary all of its inputs by the same proportion
Law of diminishing returns
As we add more of a variable resource to a fixed set of inputs with a fixed technology, the resulting output will increase over the relevant range, but at a decreasing rate
Total physical product of labor
The total amount of a product produced during a given time period by labor
Marginal physical product of labor
Extra physical product resulting from the addition of more unit of labor
Increasing returns to scale
When the firm doubles inputs the resulting output more than doubles
