EC102 (microeconomics) Flashcards
1
Q
Opportunity cost
A
The value of the highest valued foregone alternative
2
Q
Positive analysis
A
Descriptive statements of cause and effect
3
Q
Normative analysis
A
Statements that embody value judgements
4
Q
Demand curve
A
Relation between the market price and the quantity demanded during a given time period
5
Q
Supply schedule
A
Relation between market price and the amount of food that producers are willing to supply during a given time period
6
Q
Equilibrium
A
A state of affairs that will persist because no party has any incentive to change their behaviour
7
Q
Completeness assumption
A
A consumer when confronted with any 2 bundles can tell us which they prefer, or whether they’re indifferent between them
8
Q
Transitivity assumption
A
Preferences are such that if X is preferred to Y and Y is preferred to Z then X is preferred to Z
9
Q
Non satiation assumption
A
More is better
10
Q
Marginal rate of substitution (MRS)
A
The negative of the slope of an indifference curve; it measures the rate at which the consumer is willing to trade one good for the other
11
Q
Indifference curve
A
The set of all bundles among which a consumer is indifferent
12
Q
Diminishing marginal rate of substitution
A
When the MRS falls as we move down along an indifference curve
13
Q
Indifference map
A
The entire collection of indifference curves
14
Q
Perfect substitutes
A
Good that can be substituted for each other at a constant rate. They have a constant MRS
15
Q
Perfect compliments
A
Goods that have to be consumed in fixed proportions
16
Q
Total utility
A
Total satisfaction sometimes given by a numerical score of consuming a commodity bundle
17
Q
Utility function
A
Formula showing the total utility associated with a given bundle
18
Q
Ordinal utility function
A
A utility function allowing for the ranking of bundles but doesn’t allow for precise comparisons
19
Q
Cardinal utility function
A
The values of the utility function tell us exactly how much better some bundle is to another
20
Q
Price taker
A
A consumer whose price per unit of a commodity is not affected by the number of units purchased
21
Q
Budget constraint
A
Representation of bundles among which a consumer can choose given their income and prices
22
Q
Feasible set
A
The collection of bundles satisfying the budget constraint
23
Q
Interior solution
A
An equilibrium bundle which contains some of each good
24
Q
Corner solution
A
An equilibrium bundle which the consumption of one commodity is 0
25
Marginal utility
The change in total utility associated with consumption of one additional unit
26
Price consumption curve
The set of commodity bundles traced out as the price of a commodity varies
27
Cross price effect
The impact of a change in the price of one good on the quantity demanded of another good
28
Substitutes
Two goods with similar wants. An increase in the price of one good will lead to a rise in demand of the other
29
Compliments
Two goods that are used together. An increase in price of one leads to decrease in demand for the other
30
Normal good
An increase in income leads to a rise in consumption
31
Inferior good
An increase in income leads to a fall in demand
32
Income consumption curve
The set of equilibrium commodity bundles traced as consumer income varies
33
Market demand curve
The relationship between a commodities price and the demand by all market participants
34
Horizontal summation
The process of adding together individual demand curves to find the market demand curve
35
PED
-%#X/%#P
36
Inelastic
PED<1
37
Elastic
PED>1
38
Unit elastic
PED=1
39
Perfectly inelastic
PED=0. Quantity demanded does not change as price changes
40
Perfectly elastic
PED=infinite. If price rises demand will fall to 0
41
Luxury good
When YED>1
42
Consumer surplus
Difference between what a consumer is willing to pay and what they have to pay
43
Compensated demand curve
Shows how he quantity demanded varies with price assuming that as price changes consumers are compensated with enough income to keep them at their initial utility level
44
Time endowment
The upper limit of time that can be dedicated to labour or leisure
45
Value of the time endowment
The amount of money an individual would have if he worked ever available hour
46
Labour supply curve
Showing the relationship between the quantity of labour supplied and the wage rate
47
Compensating differential
The wage premium paid to workers to compensate them for jobs with undesirable characteristics
48
State of the world
The outcome of a certain situation
49
Contingent commodities
A commodity whose level depends on the state of the world
50
Expected value
The value of some variable which depends which state of the world occurs on average
51
Actuarial fair
A gamble whose expected value is 0
52
Fair odds line
A budget constraint that reflects the opportunities presented by an actuarially fair gamble
53
Risk averse
An individual who won't accept an actuarially fair gamble
54
Risk loving
An individual who prefers an uncertain prospect with a value to a certain value
55
Risk neutral
An individual who is indifferent among alternatives with the same expected value
56
Actuarially fair gamble
The premium equals the expected pay out
57
Total economic cost
The firms total expenditure on the inputs when expenditure is measured in terms of opportunity cost
58
Economic profit
Total revenue - total economic cost
59
Imputed cost
The opportunity cost incurred when the owner of a factor employs the factor in one use rather than in its best alternate use
60
Sunk expenditure
A factor expenditure that once made cannot be recovered
61
Depreciation
The fall in the value of an asset over a defined period of time
62
User cost of capital
The opportunity cost that an owner incurs as a consequence of owning and using an asset
63
Total revenue curve
Showing the relationship between a firms output level and the resulting amount of revenue
64
Total economic cost curve
Showing the relationship between a firms output level and the resulting level of total economic cost
65
Isoquant
Showing all of the input combinations that yield the same level of output
66
Variable factor
A factor whose level can be changed
67
Fixed factor
A factor whose level cannot be changed
68
Short run
A period where one factor is variable
69
Long run
A period in which all factors are variable
70
Marginal physical product (MPP)
The expected amount of output that can be produced when the firm uses one additional unit of an input
71
Increasing marginal returns
The MPP rises as the amount of the input used rises
72
Constant marginal returns
The MPP remains unchanged as the amount of a factor used rises
73
Diminishing marginal returns
The MPP falls as the amount of an input used rises
74
Marginal rate of technological substitution (MRTS)
The rate at which the substitution of one factor for anouther
75
Degree of returns to scale
The rate at which the amount of output increases as the firm increases all of its inputs proportionally
76
Constant returns to scale
A proportional increase In all inputs leads to a proportional rise in output
77
Increasing returns to scale
A proportional increase in all inputs leads to a more then proportional rise in output
78
Decreasing returns to scale
A proportional rise in all input levels leads to less the proportional rise in output
79
Isocost line
Representation all input combinations that cost the same amount.
80
Expansion path
The long run set of least cost input levels traced out as the level of output changes
81
Economies of scale
Long run costs fall as output rises
82
Diseconomies
Long run costs rise as output increases
83
Price taking firm
Chooses it's actions under the assumption that it cannot influence the prices of the output that it sells or the inputs that it buys
84
Marginal output rule
MR=MC
85
Shutdown rule
If AC>AR for all levels of output the firm should shut down
86
Free entry
When new suppliers can enter the market without any restrictions on the process of entry
87
Blocked entry
When it's impossible for new suppliers to enter the market at any reasonable cost
88
Market structure
The economic environment in which buyers and sellers in an industry operate
89
Homogenous suppliers
Perfect substitutes with MRS=1. Homogenous goods are seen as identical to buyers
90
Constant cost industry
An industry where long run average cost remain unchanged as output rises
91
Increasing cost industry
An industry where long run average costs rise with the industry output level
92
Decreasing cost industry
An industry in which long run average costs fall as industry output rises
93
Heterogeneous suppliers
Producers of a single food who have different costs of production from one another
94
Economic rent
What the supplier of a good or service is paid above and beyond what is needed to induce it to supple the output
95
As Valorem tax
A tax whose value depends on the value of the transaction
96
Unit tax
A tax that's levied as a fixed amount per unit
97
Statutory insurance of a tax
The economic agent who is legally responsible for the payment of a tax
98
Economic incidence of a tax
The change in the distribution of income brought about by the imposition of the tax
99
Elasticity of supply
The percentage change in supply divided by the percentage change in price
100
Total surplus
The sum of consumer and producer surplus
101
Excess burden
The amount by which the Ellis's of surplus suffered by consumers and producers exceeds the collected tax revenue
102
Social welfare function
A function or schedule that shows how the well being of society depends upon the utilities of its members
103
First welfare theorem
The result that the competitive equilibrium is efficient because it maximises total surplus
104
Price maker
An economic decision maker that recognises that its quantity choice has an influence on the price at which it buys or sells a good
105
Market power
Anouther name for a firms ability to influence price
106
I fragment all units
The units of output that the firm could have sold at the old price but now must sell at the new lower price that prevails when it increases its output level
107
Process innovation
An idea that lowers the cost of producing existing products
108
Product innovation
An idea that gives rise to a new good or service
109
Deadweight loss of monopoly
The loss on total surplus that arises because a monopolist produces less than the total surplus maximising amount of output
110
Price discrimination
The practice of charging different consumers different prices for the same good
111
First degree price discrimination
The practice of selling each unit of output at a price equal to the buyers maximal willingness to pay for that unit
112
Second degree price discrimination
The same price schedule is offered to all buyers and they sort themselves through self selection
113
Third degree price discrimination
The practice of identifying desperate groups of buyers and charging different prices to these groups
114
Duopoly
A market in which there are only 2 suppliers
115
Best response curve
A schedule showing a decision makers beat course of action for each set of choices made by another decision maker
116
Nash equilibrium
A market is in Nash equilibrium when each firm is choosing the strategy that maximises its profit given the strategies of the other firms within the market
117
Courtney equilibrium
A Nash equilibrium in a market in which each firms strategy consists of its choice of output level
118
Residual demand curve
The firm specific demand curve faced by a supplier given the price or output strategies chosen by its rivals
119
Best response curve or reaction curve
A schedule showing a decision makers best course of action for each set of choices made by another decision maker
120
Players
The decision maker in a game
121
Strategy
A players plan of action in a game
122
Actions
The particular things that are done according to a players strategy in a game
123
Payoffs
The rewards enjoyed by a player at the end of the game
124
Game tree
An extension of a decision tree that provides graphical representation of a strategic situation
125
Decision rule
A strategy that specifies when actions will be taken conditional on what happens earlier in the game
126
Dominant strategies
A strategy that works as least as well as any other one regardless of what the other players do
127
Dominant strategy equilibrium
An outcome in a game in which each player follows a dominant strategy
128
Perfect equilibrium
A set of strategies that satisfies both Nash and credibility conditions
129
Commitment
The process whereby a player irreversibly alters its payoffs in advance so that it will be in the players self interest to carry out a threatened action when the time comes
130
Games of imperfect information
A game in which doe players must make a move but is unable to observe the earlier or simultaneous move by some other player
131
Game of incomplete information
A game in which some player is unsure about some of the underlying characteristics of the game such as another players payoffs
132
Prisoners dilemma
A strategic situation in which two players each have a dominant strategy but playing this pair of strategies leads to an outcome in which both sides are worse off than they would be if they cooperated by playing alternate strategies
133
Pure strategy
A strategy that specifies a specific action at each decision point
134
Mixed strategy
A strategy that allows for randomisation among actions at some or all decision points
135
Asymmetric information
A situation in which one side of an economics relationship has better information than the other
136
Hidden characteristics
Things that one side of a transaction knows about itself that the other side would like to know but does not
137
Hidden actions
Actions taken by one side of an economic relationship that the other side of the relationship cannot observe
138
Signal
An observable indicator of a hidden characteristic
139
Self selection device
A mechanism in which an informed party in an economic relationship is offered a set of options and the choice made by the informed party reveals his hidden characteristics
140
Screening
An uniformed party's attempt to sort the informed parties
141
Private valuations
Where the intrinsic value of the good being auctioned varies among bidders
142
Common variations
Where the intrinsic value of a good being bid for is the same for all bidders
143
Revenue equivalence
The fact that English first price and second price sealed bid auctions produce the same revenue returns for the sellers
144
Winners curse
Where in s common values auction the winner finds that they've paid more for the good than its intrinsic value
145
Residual claimant
A party to a contract who gets all of the residual profit
146
Externality
A direct effect of the actions of one person or firm on the welfare of another party in a way not transmitted by market forces
147
Social marginal cost
Incremental cost of production which includes the opportunity cost of all scarce resources weather priced or not
148
Coase theorem
Assuming there are no bargaining costs once ownership rights to a resource are established individuals will bargain their way to an efficsnt use of resources
149
Pigouvian tax
A tax levied upon each unit of pollution in an amount just equal to the marginal damage it inflicts upon society at the efficient level of output
