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ECN100 Terms C1-3

Key terms from chapters 1-3.

QuestionAnswer
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.
Created by: starrydays
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