Micro definitions Flashcards
Opportunity Cost
The value of the next best foregone alternative which is given up when an economic decision is made
Absolute Advantage
The ability of an agent to produce a greater quantity of something than competitors using the same amount of resources
Comparative Advantage
The ability of an agent to produce a greater quantity of something than competitors at a lower opportunity cost
Marginal Rate of Transformation
The Slope of the PPF, which reflects the opportunity cost, since it describes what must be given up on order to acquire more of something else
Technological Domination
When one technology uses fewer factors of production in every aspect to produce the same amount of output than another technology
Willingness to Pay (WTP)
The value of an extra unit acquired (Marginal Measure). The individual’s incentive to make a purchase. This is the function that converts price to quantity — the Demand Curve.
Willingness to Accept (WTA)
The value of an extra unit parted with (Marginal Measure). The loss that comes with parting with a good, requiring mitigation.
Reservation Price (Consumer)
The maximum price that a consumer will pay to acquire a good. It is the vertical intercept on a demand curve
Satiation Point
The Maximum valuation of a good according to the consumer. It is the horizontal intercept on the demand curve
Reservation Price (Producer)
The minimum price that a producer must earn in order to part with a single unit of product. It is the vertical intercept on a Supply curve.
Consumer Surplus
The area between the Consumer’s demand curve and the price
Producer Surplus
The area between the Producer’s supply curve and the price
Elasticity
The elasticity is the proportional change in quantity that results from a small proportional change in price
