Introduction to Microeconomics- Midterm #2

the maximum price a customer is willing to pay for a good or service.

is the difference between the willingness to pay for a good and the price that is paid to get it.

is the difference between the price that the seller receives and the price at which the seller is willing to sell the good or service.

occurs when an allocation of resources maximizes total surplus. A way of enjoying a producer or consumer surplus.

a legally established maximum price for a good or service.

a legally established minimum price for a good or service.

sales, income, property, school,

refers to the burden of taxation on the party who pays the tax through higher prices, regardless of whom the tax is actually imposed on, buyers or sellers.

the person or company who is legally obliged to pay the tax. A.K.A. those who physically pay the tax.

borne by those who suffer economic loss as a result of the tax.

the decrease in economic activity caused by market distortions.

taxes levied (imposed) on a particular good or service.

the costs and benefits of a market activity that affect a third party, which often lead to undesirable consequences.

occurs when there is an inefficient allocation of resources in a market.

the sum of internal and external costs.

A positive externality is a benefit that is enjoyed by a third-party as a result of an economic transaction. (When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as a result of your education. (positive consumption externality)

A negative externality is a cost that is suffered by a third party as a result of an economic transaction. (For example, no one owns the oceans and they are not the private property of anyone, so ships may pollute the sea without fear of being taken to court).

The costs incurred by either producers in producing output or by consumers in consumption expenditure to satisfy needs and wants.

The profit earned by businesses or satisfaction gained by consumers from the consumption of goods or services.

the total benefit from consuming a good or service, including both the private benefit and any external benefit.

an owner's ability to exercise control over a resource.

Taxes that are used as an incentive for producers to cut back on an activity that creates an external cost.

if there are no barriers to negotiations, and if property rights are fully specified, interested parties will bargain to correct any externalities that exist.

Government regulation targeted at a specific firm or industry, as opposed to a regulation that's not targeted at a specific firm or industry but affects them anyway, as is the case with some environmental regulations.

are permits to pollute, issued by a governing body, which sets a maximum amount of pollution allowable. Firms may trade these permits for money.

the costs that parties incur in the process of agreeing to and following through on a bargain

whenever people receive a benefit the do not pay for.

a situation that occurs when a good is rival in consumption but non-excludeable becomes depleted.

a good that can be jointly consumed by more than one person, and from which nonpayers are difficult to exclude.

One individual's consumption of a good does not affect another's opportunity to consume the good.

For example, when watching fireworks, consumers cannot be forced to pay, and as a result, they may desire more of the good than what is typically supplied.

the costs that only the individual participant pays. For example, when you're driving, you consider the time it takes to get to the destination, the amount you pay for gasoline, and what we pay for routine vehicle maintenance.

the costs of a market activity imposed on people who are not participants in that market. For example, the congestion and pollution your car makes creates ______.

measures the responsiveness of quantity demanded to a change in price.

A situation in which consumer demand is sensitive to changes in price.

measurement of how a change in income affects spending.

demand is unit elastic when the percentage change in quantity demanded is equal to the percentage change in price, so the price elasticity is equal to 1 in absolute value.

A measure of how sensitive consumption of good X is to a change in a consumer's income.

a good consumers buy more of as income rises, holding other things constant.

a good purchased out of necessity rather than choice.

measurement of the responsiveness of the quantity demanded of one good to a change in the price of a related good.

a measure of the responsiveness of the quantity supplied to a change in price; sometimes called elasticity of supply or supply elasticity.

measurement of how a change in income affects spending.

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is a measure of the responsiveness of buyers and sellers to changes in price or income.

a measure of the level of satisfaction that a consumer enjoys from the consumption of goods and services.

the additional satisfaction derived from consuming one more unit of a good or service.

occurs when marginal utility declines as consumption increases

the additional utility from spending one more dollar on that good or service

occurs when there is a change in purchasing power as a result of a change in the price of a good.

occurs when consumers substitute a product that has been relatively less expensive as the result of a price change.

represents the various combinations of two goods that yield the same level of satisfaction, or utility.

1. They are bowed inward toward the Origin (convex)
2. They cannot be thick
3. They cannot intersect

the set of consumption bundles that represent the maximum amount the consumer can afford.

the point at which a certain combination of two goods yields the most utility.

describes the relationship between the inputs a firm uses and the output it creates.

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the change in output associated with one additional unit of an input.

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are unavoidable; they do not vary with output in the short run. These costs are also known as overhead.

change with the rate of output

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the increase in cost that occurs from producing one additional unit of output.

is determined by dividing total fixed cost by the output.

is determined by dividing total variable cost by the output.

the sum of average variable cost and average fixed cost.

occur when long-run average total costs decline as output expands.

occur when long-run average total costs rise as output expands.

occur when long-run average total costs remain constant as output expands.