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ECN100 Terms C1-3
Key terms from chapters 1-3.
Question | Answer |
---|---|
Economics | Study of the allocation of scarce resources among alternative uses. |
Microeconomics | Study of economic choices individuals and firms make and of how these choices create markets. |
Models | Simple theoretical descriptions that capture the essentials of how the economy works. |
Opportunity Cost | Cost of a good measured by the alternative uses that are foregone by producing it. |
Diminishing Returns | Hypothesis that the cost associated with producing one more unit of a good rises as more of that good is produced. |
Positive | What is; based on fact. |
Normative | What should be; based on ethics or opinion. |
Statistical Inference | Use of actual data and statistical techniques to determine quantitative economic relationships. |
Endogenous Variable | Variables whose values are determined by a model. |
Exogenous Variable | Variables whose values come from outside the model. (Don't directly affect the model.) |
Theory of Choice | Interaction of preferences and constraints that causes people to make the choices they do. |
Utility | Satisfaction that a person receives from his or her economic activities. |
Ceteris Paribus | In economic analysis, hold all other factors constant so that only the factor being studied is allowed to change. |
Complete Preference | Assumption that an individual is able to state which of any two options are preferred. |
Transitivity of Preferences | Property that if A is preferred to B, and B is preferred to C, then A is preferred to C. |
"Pig Theory" - More Is Better | Assumption that people prefer more of a good than less. |
Indifference Curve | Curve that shows all the combinations of goods or services that provide the same level of utility. |
Marginal Rate of Substitution | Rate at which an individual is willing to reduce consumption of one good when he gets one more unit of another good. (Means slope of indifference curve is negative.) |
Indifference Curve Map | Contour map that shows utility an individual obtains from all possible consumption options. |
Budget Constraint | Limit that income places on the combinations of goods that an individual can buy. |
Composite Good | Combining expenditures on several different goods whose relative prices do not change into a single good for convenience in analysis. |
Demand Function | Representation of how quantity demanded depends on prices, income, and preferences. |
Homogenous Demand Function | Quantity demanded does not change when prices and income increase in the same proportion. |
Normal Good | Good that is bought in greater quantities as income increases. |
Inferior Good | Good that is bought in smaller quantities as income increases. |
Substitute Effect | Part of the change in quantity demanded that is caused by substitution of one good for another. Movement along an indifference curve. |
Income Effect | Part of the change in quantity demanded that is caused by a change in real income. Movement to another indifference curve. |
Giffen's Paradox | Situation in which an increase in a good's price leads people to consume more of a good. |
Complements | Two goods such that when the price of one increases, the quantity demanded of the other falls. |
Substitutes | Two goods such that if the price of one increases, the quantity demanded of the other rises. |
Increase or Decrease in Quantity Demanded | Caused by change in good's price. Movement along a demand curve. |
Increase or Decrease in Demand | Changed by price of another good, income, or preferences. Shift of entire demand curve. |
Consumer Surplus | Extra value individuals receive from consuming a good over what they pay for it. |
Elasticity | Measure of the percentage change in one variable brought about by a one percent change in some other variable. |
Cross Price Elasticity of Demand | Percentage change in quantity demanded in response to a one percent change in the price of another good. |