ECON 208 Terms - Mid term 1 - Assignment Essays

question

utility

answer

Satisfaction one receives from consuming a good or service

question

total utility

answer

Total satisfaction resulting from the consumption of a given product

question

marginal utility

answer

Additional satisfaction obtained by consuming one more unit of product

question

diminishing marginal utility

answer

Decreasing utility that a consumer receives from each successive unit of a given product as total consumption increases

question

utility maximizing consumer

answer

allocates expenditure so that their last dollar spent on product X has equal utility as the last dollar spent on product Y
MUx / Px = MUy / Py or MUx / MUy = Px / Py

question

theory of marginal utility

answer

...

question

real income

answer

income expressed by purchasing power as the quantity of goods and services that can be purchased with this money income

question

substitution effect

answer

increases quantity demanded for a product whose price has fallen and decreases quantity demanded for a product whose price has risen

question

income effect

answer

...

question

normal good

answer

a good that consumers demand more of when their incomes increase

question

inferior good

answer

a good that consumers demand less of when their incomes increase

question

consumer surplus

answer

difference between the maximum amount the consumer is willing to pay for a unit of product and what the consumer actually pays

question

the paradox of value

answer

goods with low price and low marginal value have high total value e.g. water, and goods with high price and high marginal value have low total value e.g. diamonds

question

price floor

answer

A legal minimum on the price at which a good can be sold, when binding they cause excess supply

question

price ceiling

answer

A legal maximum on the price at which a good can be sold, when binding they cause excess demand

question

deadweight loss

answer

the amount of economic surplus lost due to a price ceiling or a price floor

question

inelastic curve

answer

0<n<1

question

elastic curve

answer

n>1

question

economic surplus

answer

The difference between value to customers and additional costs to producers.

question

output quota

answer

an expensive "license to produce" a limited amount of product that rises the price consumers are willing to pay if demand is inelastic

question

elastic demand

answer

very responsive to change in price

question

inelastic demand

answer

relatively unresponsive to change in price

question

equation for elasticity of demand

answer

% change in quantity demanded / % change in price

question

equation for elasticity of demand over two points

answer

(change in Qd/average Qd)/(change in P/average P)

question

perfectly inelastic

answer

n=0

question

unit elastic

answer

n=1

question

perfectly elastic

answer

n=infinity

question

excise tax

answer

a tax on the production or sale of a good

question

tax incidence

answer

the location of the burden of tax e.g. who bears most of the tax burden

question

consumer burden

answer

when demand is inelastic relative to supply

question

seller/producer burden

answer

when supply is inelastic relative to demand

question

income elasticity of demand

answer

n(y) = % change in quantity demanded / % change in income

question

cross elasticity of demand

answer

a measure of the responsiveness of demand for one product when the price of another product changes

question

n(xy) < 0

answer

complements (when the price of one rises, demand for the other falls)

question

n(xy) > 0

answer

substitutes (when the price of one rises, demand for the other also rises)

question

normative statement

answer

what ought to be; based on a value judgement

question

positive statement

answer

what is, was or will be; not based on a value judgement

question

endogenous variable

answer

dependent

question

exogenous variable

answer

independent

question

index number

answer

(value in given period / value in base period) x 100. To establish relative change in multiple variables.

question

cross-sectional data

answer

observations of the same variable at one point in time in different places

question

time-series data

answer

observations of one variable through time

question

scarcity

answer

Limited quantities of resources to meet unlimited wants

question

oligopolistic market

answer

High concentration ratio for a few firms serving one market

question

strategic behaviour

answer

Behaviour designed to take account of the reactions of one's rivals to one's own behaviour - oligopoly

question

cooperative outcome

answer

a situation in which existing firms cooperate to maximize their joint profits - oligopoly

question

non-cooperative outcome

answer

an industry outcome reached when firms maximize their own profit without cooperating with other firms - oligopoly

question

game theory

answer

The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions - oligopoly

question

nash equilibrium

answer

an equilibrium in which each firm is doing the best it can conditional on the actions taken by its competitors

question

collusion

answer

agreement among sellers to act jointly in common interest - overt, covert or explicit

question

tacit collusion

answer

collusion without explicit agreement- the firms simply understand what is mutually beneficial

question

explicit collusion

answer

cooperation involving direct communication between competing firms about setting prices - usually illegal and forms cartels e.g. OPEC

question

productive efficiency

answer

The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal cost is the same for all firms in an industry

question

allocative efficiency

answer

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it

question

pareto efficient

answer

output is such that marginal costs equals marginal value to customers (the market price), the idea of allocative efficiency

1 of 55

question

utility

answer

Satisfaction one receives from consuming a good or service

question

total utility

answer

Total satisfaction resulting from the consumption of a given product

question

marginal utility

answer

Additional satisfaction obtained by consuming one more unit of product

question

diminishing marginal utility

answer

Decreasing utility that a consumer receives from each successive unit of a given product as total consumption increases

question

utility maximizing consumer

answer

allocates expenditure so that their last dollar spent on product X has equal utility as the last dollar spent on product Y
MUx / Px = MUy / Py or MUx / MUy = Px / Py

question

theory of marginal utility

answer

...

question

real income

answer

income expressed by purchasing power as the quantity of goods and services that can be purchased with this money income

question

substitution effect

answer

increases quantity demanded for a product whose price has fallen and decreases quantity demanded for a product whose price has risen

question

income effect

answer

...

question

normal good

answer

a good that consumers demand more of when their incomes increase

question

inferior good

answer

a good that consumers demand less of when their incomes increase

question

consumer surplus

answer

difference between the maximum amount the consumer is willing to pay for a unit of product and what the consumer actually pays

question

the paradox of value

answer

goods with low price and low marginal value have high total value e.g. water, and goods with high price and high marginal value have low total value e.g. diamonds

question

price floor

answer

A legal minimum on the price at which a good can be sold, when binding they cause excess supply

question

price ceiling

answer

A legal maximum on the price at which a good can be sold, when binding they cause excess demand

question

deadweight loss

answer

the amount of economic surplus lost due to a price ceiling or a price floor

question

inelastic curve

answer

0<n<1

question

elastic curve

answer

n>1

question

economic surplus

answer

The difference between value to customers and additional costs to producers.

question

output quota

answer

an expensive "license to produce" a limited amount of product that rises the price consumers are willing to pay if demand is inelastic

question

elastic demand

answer

very responsive to change in price

question

inelastic demand

answer

relatively unresponsive to change in price

question

equation for elasticity of demand

answer

% change in quantity demanded / % change in price

question

equation for elasticity of demand over two points

answer

(change in Qd/average Qd)/(change in P/average P)

question

perfectly inelastic

answer

n=0

question

unit elastic

answer

n=1

question

perfectly elastic

answer

n=infinity

question

excise tax

answer

a tax on the production or sale of a good

question

tax incidence

answer

the location of the burden of tax e.g. who bears most of the tax burden

question

consumer burden

answer

when demand is inelastic relative to supply

question

seller/producer burden

answer

when supply is inelastic relative to demand

question

income elasticity of demand

answer

n(y) = % change in quantity demanded / % change in income

question

cross elasticity of demand

answer

a measure of the responsiveness of demand for one product when the price of another product changes

question

n(xy) < 0

answer

complements (when the price of one rises, demand for the other falls)

question

n(xy) > 0

answer

substitutes (when the price of one rises, demand for the other also rises)

question

normative statement

answer

what ought to be; based on a value judgement

question

positive statement

answer

what is, was or will be; not based on a value judgement

question

endogenous variable

answer

dependent

question

exogenous variable

answer

independent

question

index number

answer

(value in given period / value in base period) x 100. To establish relative change in multiple variables.

question

cross-sectional data

answer

observations of the same variable at one point in time in different places

question

time-series data

answer

observations of one variable through time

question

scarcity

answer

Limited quantities of resources to meet unlimited wants

question

oligopolistic market

answer

High concentration ratio for a few firms serving one market

question

strategic behaviour

answer

Behaviour designed to take account of the reactions of one's rivals to one's own behaviour - oligopoly

question

cooperative outcome

answer

a situation in which existing firms cooperate to maximize their joint profits - oligopoly

question

non-cooperative outcome

answer

an industry outcome reached when firms maximize their own profit without cooperating with other firms - oligopoly

question

game theory

answer

The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions - oligopoly

question

nash equilibrium

answer

an equilibrium in which each firm is doing the best it can conditional on the actions taken by its competitors

question

collusion

answer

agreement among sellers to act jointly in common interest - overt, covert or explicit

question

tacit collusion

answer

collusion without explicit agreement- the firms simply understand what is mutually beneficial

question

explicit collusion

answer

cooperation involving direct communication between competing firms about setting prices - usually illegal and forms cartels e.g. OPEC

question

productive efficiency

answer

The production of a good in the least costly way; occurs when production takes place at the output at which average total cost is a minimum and marginal cost is the same for all firms in an industry

question

allocative efficiency

answer

question

pareto efficient

answer

output is such that marginal costs equals marginal value to customers (the market price), the idea of allocative efficiency

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ECON 208 Terms – Mid term 1

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