Homework 1 Definitions

Question 1

Understand, explain, predict what and why economic events occur, and how economic behavior will respond to changes in circumstances; “what is”

Answer 1

Positive economics

Question 2

Attempt to determine which economic outcomes are better or worse than what economic outcomes might be the best; “what ought to be”

Answer 2

Normative economics

Question 3

Situation a is better than situation b if at least 1 person prefers a to b, and no one prefers b to a

Answer 3

Pareto criterion

Question 4

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

Answer 4

Pareto improvement

Question 5

A situation in which there are no feasible improvements; thus it is impossible to make one person better off without making another worse off

Answer 5

Pareto efficiency

Question 6

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

Answer 6

Potential Pareto criterion

Question 7

Comparing benefits and costs to analyze efficiency

Answer 7

Benefit cost analysis

Question 8

A complete system of competitive markets for private goods and factors achieves a Pareto efficient allocation of resources

Answer 8

First theorem of welfare economics

Question 9

The additional benefit of consuming one more of a good

Answer 9

Marginal benefit

Question 10

The amount of money a customer is willing to pay for one additional unit of a good

Answer 10

Marginal willingness to pay

Question 11

The marginal benefit of a good at a given quantity

Answer 11

Demand price

Question 12

The additional cost of producing one additional unit of a good

Answer 12

Marginal cost

Question 13

The amount of money a producer is willing to accept for one more unit of a good

Answer 13

Marginal willingness to accept

Question 14

The marginal cost of a good at a given quantity

Answer 14

Supply price

Question 15

Action of spending funds

Answer 15

 expenditure

Question 16

When the price that consumers pay for a good is less than the price they are willing to pay

Answer 16

Consumer surplus

Question 17

Total quantity of output multiplied by the variable cost per unit of output; expenses that rise or fall in direct proportion to production volume

Answer 17

Total variable cost

Question 18

Price of good Times quantity

Answer 18

Revenue

Question 19

Total amount that a producer benefits from producing and selling at a quantity of a good at market price

Answer 19

Producer surplus

Question 20

Refers to entitlements to defining the rights privileges and limitation for use of a resource

Answer 20

Property rights

Question 21

Rights and limitations on use

Answer 21

Use

Question 22

Rights and limits to exclude others from use

Answer 22

Exclusion

Question 23

Rights and limits on conveying possession to others

Answer 23

Transfer

Question 24

Uses norms based on the preferences of society. Perspective is anthropocentric (human-centered), individualistic, and identifies individual well being with satisfaction of preferences.

Answer 24

Neoclassical welfare economics