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51 Cards in this Set
- Front
- Back
Theme of ECO 312?
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Studying human behavior as a relationship between given ends and scarce means which have alternative uses
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3 Possible Scopes of Economics:
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1. Fertility decisions
2. Business profit maximization 3. Criminal behavior |
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3 Most Common Economic Errors in Decision Making:
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1. Ignoring implicit costs
2. Caring about sunk costs 3. Measuring costs and benefits as proportions and not as absolute values |
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What is the principle of the "invisible hand"?
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Self-interested consumers are driven to produce the greatest social good
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What are the limitations of the "invisible hand"?
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External costs and benefits
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question about what policies or institutional arrangements lead to the best outcomes
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normative question
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question about the consequences of specific policies or institutional arrangements
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positive question
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Concept of the marginal benefit being greater than the marginal cost
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thinking marginally
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study of individual choices and the study of group behavior in individual markets
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microeconomics
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study of broader aggregations of markets
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macroeconomics
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people choose the best patterns of consumption that they can afford
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optimization principle
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quantity demanded becomes equal to quantity supplied through price changes
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equilibrium principle
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In equilibrium, there is no ___________ and no ______________.
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shortages; surpluses
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compare one equilibrium to another after a shock
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comparative statics
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Derived demand curve based on the concept of _________________.
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reservation price
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the set of price-quantity pairs for which suppliers are satisfied
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supply curve
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3 Non-competitive ways to allocate a good:
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1. Price discrimination
2. Monopoly 3. Rent control |
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It is attained when the only way to make someone else better off is to make someone else worse off
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Pareto efficiency
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a particular combination of two or more goods
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consumption bundle
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(x1, x2)
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consumption bundle
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bundles on or below the budget constraint
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budget set
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the set of all bundles that exactly exhaust the consumer's income at given prices
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budget constraint
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opportunity cost of x1 in terms of x2
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slope of budget constraint
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What happens to the budget constraint graphically when income increases from m to m'?
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shifts parallel outward
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X > Y
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X is strictly preferred to Y
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X ~ Y
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Indifferent between X and Y
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X >_ Y
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X is weakly preferred to Y
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3 Basic Assumptions about preferences:
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1. Complete
2. Reflexive 3. Transitive |
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Two Principles of Well-behaved preferences:
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1. "more is better"
2. Averages are preferred to extremes |
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at any point on an indifference curve, the rate at which the consumer is willing to exchange the good measured along the vertical axis for the good measured along the horizontal axis
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marginal rate of substitution
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the more food the consumer has, the more she is willing to give up to obtain an additional unit of shelter
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diminishing marginal rate of substitution
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Utility is __________ (not ___________)
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ordinal; cardinal
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_____________________ of the utility function do not change the ranking of consumption bundles
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monotonic transformations
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This occurs at the tangency of indifference curves and budget constraint
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maximization of utility
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At the optimal bundle, MRS =?
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P1/P2
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one whose quantity demanded rises as income rises
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normal good
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one whose quantity demanded falls as income rises
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inferior good
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Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity.
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market demand
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Difference between market demand and individual demand?
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The market demand gives the total quantity demanded by all consumers.
The individual demand is the demand of one individual or firm. |
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a measure of responsiveness
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elasticity
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% change in y / % change in x
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elasticity
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Price elasticity of demand has an absolute value greater than 1, then it has an __________ demand.
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elastic
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Price elasticity of demand is less than 1, then it has an ___________ demand.
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inelastic
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Income elasticity of demand is greater than 0, then it is a ________ good.
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normal
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Income elasticity of demand is greater than 1, then it is a _________ good.
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luxury
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Income elasticity of demand is less than 0, then it is an ___________ good.
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inferior
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Cross price elasticity of demand is greater than 0, then the items are considered to be _____________.
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substitutes
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Cross price elasticity of demand is less than 0, the goods are considered to be ___________.
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complements
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If demand is elastic, _______ price.
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reduce
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If demand is inelastic, _________ price.
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increase
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If demand is unit elastic, ____________ price.
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do not change
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