Marginalists and Neoclassical Economics: Key Words and Concepts Flashcards
Marginalism
Definition: An economic approach focusing on the marginal utility or productivity of goods and inputs to determine value and prices.
Key Idea: Decisions are made at the margin, considering the additional benefits or costs of the next unit.
Marginal Utility
Definition: The additional satisfaction or benefit derived from consuming one more unit of a good or service.
Key Thinker: William Stanley Jevons.
Marginal Productivity
Definition: The additional output produced by employing one more unit of a production factor (e.g., labor or capital).
Application: Used to determine wages, rents, and profits.
General Equilibrium Theory
Definition: A model where supply and demand in all markets are interdependent and simultaneously reach equilibrium.
Key Thinker: Léon Walras.
Law of Diminishing Marginal Utility
Definition: The principle that as more of a good is consumed, the additional satisfaction from each subsequent unit decreases.
Example: Eating one slice of pizza provides more satisfaction than the second or third.
Consumer Surplus
Definition: The difference between the price a consumer is willing to pay and the actual price they pay.
Key Thinker: Alfred Marshall.
Elasticity
Definition: A measure of the responsiveness of quantity demanded or supplied to changes in price or other factors.
Types: Price elasticity, income elasticity, and cross-price elasticity.
Opportunity Cost
Definition: The value of the next best alternative foregone when a choice is made.
Key Idea: Central to decision-making and resource allocation.
Partial Equilibrium Analysis
Definition: Analyzes equilibrium in a single market while holding other markets constant.
Key Thinker: Alfred Marshall.
Factors of Production
Definition: Inputs used in production: land, labor, capital, and entrepreneurship.
Neoclassical Contribution: Focus on their marginal productivity to determine distribution.
Utility Maximization
Definition: The assumption that individuals seek to maximize their satisfaction or utility within their budget constraints.
Producer Surplus
Definition: The difference between the price a producer is willing to accept and the actual price they receive.
Pareto Efficiency
Definition: An economic state where no individual can be made better off without making someone else worse off.
Key Thinker: Vilfredo Pareto.
Isoquant Curve
Definition: A graph showing all combinations of inputs that produce the same level of output.
Key Idea: Used in production theory to analyze efficiency.
Indifference Curve
Definition: A graph showing combinations of goods that provide the same level of satisfaction to a consumer.
Application: Illustrates consumer preferences.
Walras’ Law
Definition: In a general equilibrium system, if all markets but one are in equilibrium, the last market must also be in equilibrium.
Edgeworth Box
Definition: A graphical representation of resource allocation and trade-offs between two individuals or firms.
Perfect Competition
Definition: A market structure characterized by many buyers and sellers, homogeneous products, and free market entry and exit.
