Homework 1 Definitions Flashcards
Understand, explain, predict what and why economic events occur, and how economic behavior will respond to changes in circumstances; “what is”
Positive economics
Attempt to determine which economic outcomes are better or worse than what economic outcomes might be the best; “what ought to be”
Normative economics
Situation a is better than situation b if at least 1 person prefers a to b, and no one prefers b to a
Pareto criterion
Moving from situation B to situation A is a Pareto improvement - this occurs only if no one else is harmed by the move and at least one person gains
Pareto improvement
A situation in which there are no feasible improvements; thus it is impossible to make one person better off without making another worse off
Pareto efficiency
Allocation A is a PPI over B if, in making the move from B to a, those who prefer a could compensate those who prefer B so that if compensation were paid, no one would prefer b to a
Potential Pareto criterion
Comparing benefits and costs to analyze efficiency
Benefit cost analysis
A complete system of competitive markets for private goods and factors achieves a Pareto efficient allocation of resources
First theorem of welfare economics
The additional benefit of consuming one more of a good
Marginal benefit
The amount of money a customer is willing to pay for one additional unit of a good
Marginal willingness to pay
The marginal benefit of a good at a given quantity
Demand price
The additional cost of producing one additional unit of a good
Marginal cost
The amount of money a producer is willing to accept for one more unit of a good
Marginal willingness to accept
The marginal cost of a good at a given quantity
Supply price
Action of spending funds
 expenditure
When the price that consumers pay for a good is less than the price they are willing to pay
Consumer surplus
Total quantity of output multiplied by the variable cost per unit of output; expenses that rise or fall in direct proportion to production volume
Total variable cost
Price of good Times quantity
Revenue
Total amount that a producer benefits from producing and selling at a quantity of a good at market price
Producer surplus
Refers to entitlements to defining the rights privileges and limitation for use of a resource
Property rights
Rights and limitations on use
Use
Rights and limits to exclude others from use
Exclusion
Rights and limits on conveying possession to others
Transfer
Uses norms based on the preferences of society. Perspective is anthropocentric (human-centered), individualistic, and identifies individual well being with satisfaction of preferences.
Neoclassical welfare economics
