Quiz #4 Vocab Flashcards
Goods and services are received by those who value them most; consumer utility is maximized such that MUa:Pa=MUb/Pb
Distributive efficiency
The optimal distribution of goods and services considering consumer preferences; P=MC
Allocative Efficiency (socially optimal)
Optimal production, the firm cannot produce more output with the same level of inputs or the same output with less inputs; MPI/wage=MPk/Rental rate
Productive efficiency (least cost combination of resources)
Quantity demanded will rise when income rises and fall when income falls
Normal goods
Quantity demanded will fall when income rises and ride when income falls
Inferior goods
How the quantity demanded for one good changes when the price of a related good changes; positive for subs, negative for complements
Cross price elasticity
Sensitivity of quantity demanded to changes in income; positive for normal goods, negative for inferior goods
Income elasticity
The increase in consumer satisfaction from consuming one more of a given good or service
Marginal utility
Total satisfaction from consumption of a good or service
Total utility
Benefit consumers get from paying less for a good or service than they are willing to pay; area above equilibrium but below demand curve
Consumer surplus
Benefit to producers from selling a good or service for more than what they are willing to sell; area below equilibrium but above supply curve
Producer surplus
Loss to society when markets are made inefficient; a waste of surplus or benefit that could be avoided
Deadweight loss
Goods made to be used together as one; P of good A and QD for comp go in opposite directions
Complementary goods
Goods used in place of one another; P of good A and QD for sub go in the same direction
Substitute goods
