man econ prelim 2 Flashcards
utility
The consumer’s level of satisfaction
Budget Line:
the various combos of 2 goods the consumer can afford given her income and the relative prices of the goods
Completeness
a consumer is able to decide which bundles she may want to consume
Rankability
a consumer is able to rank all possible bundles she can consume
Transitivity
if A is preferred to B and B is preferred to C then A must be preferred to C
marginal utility
the additional utility from consumer an additional unit
diminishing marginal utility
the idea that as a consumer consumes additional units of one good, the amount of another good she is willing to give up become less and less
Indifference curve
shows the various combos of 2 goods that yield the same satisfaction to a consumer
indifference map
shows all of the consumer’s indifference curves between 2 goods
Marginal rate of substitution:
the amount of 1 good a consumer is willing to give up to consumer 1 additional unit of another and stay indifferent
income effect
shows the change in consumption from a relative price change when the consumer’s purchasing power is allowed to adjust
Substitution effect:
shows the change in consumption from a relative price change when the consumer’s utility is held constant
giffen good
an inferior good where the income effect is greater than the substitution effect
production function
shows the relationship between inputs and two outputs that can be produced given the technology
variable input
An input whose use can be altered
fixed input
an input whose use cannot be altered in the short-run
Total product:
Total product: graphical depiction of the production function
Average product:
output divided by the amount of an input used to produce that output
marginal product
change in output from using 1 more of an input
Value of marginal product:
benefit the firm recipes from hiring an additional input = P * Marginal Product of the Input
Marginal revenue product:
benefit the firm recipes from hiring an additional input = MR * Marginal Product of input
Leontief production function:
production function which assumes all inputs are required in a specific ratio.
Isoquant
shows the various combinations of 2 inputs that can produce the same amount of output
Marginal rate of technical substitution:
the amount of 1 input that has to be given up to use 1 additional unit of another, keeping output constant
isocost
shows the various combinations of 2 inputs that cost the sake for the firm
Optimal input mix:
long run decision about the number of all inputs to hire: when the MPL/ W =MPK/r, marginal product per dollar spent is equated across all inputs
Optimal input use:
short run decision about hiring an additional input: when the VMP (or MRP)= cost of input
Cobb douglas production function:
prod function which assumes all inputs are required in a specific ratio with a degree of substitutability across inputs
Income Elasticity of Demand
% change in qd from a given % change in income.
Elasticity of Supply
percent change in q supplied from a given percent change in price
Advertising Elasticity of Demand
% change in qd from a given % change in advertising exp.
Cross Price Elasticity of Demand
shows the percent change in the demand for good x from a given percent change in the price of good z
