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price-consumption curve
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Curve tracing the utility-maximizing combinations of two goods as the price of one changes
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Individual demand curve
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Curve relating the quantity of a good that a single consumer will buy to its price
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Inferior good
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An increase in a person's income can lead to less consumption of one of the two goods being purchased
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Calculate elasticity
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(∆Q/Q) / (∆P/P)
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Substitution effect
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Change in consumption of a good associated with a change in its price, with the level of utility held constant
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two points on Market Demand
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1. The market demand curve will shift to the right as more consumers enter the market
2.Factors that influence the demands of many consumers will also affect market demand
2.Factors that influence the demands of many consumers will also affect market demand
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Bandwagon effect
answer
Positive network externality in which a consumer wishes to process a good in part because other do
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snob effect
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Negative network externality in which a consumer wishes to own an exclusive or unique good
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Expected value
answer
E(X)= Pr1 + Pr2X2
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standard deviation
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Square root of the weighted average of the squares of the deviations of the payoffs associated with each outcome from their expected values
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expected utility
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Sum of the utilities associated with all possible outcomes, weighted by the probability that each outcome will occur
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Risk Averse
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Condition of preferring a certain income to a risky income with the same expected value
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Risk Loving
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Condition of preferring a risky income to a certain income with the same expected value
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risk premium
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Maximum amount of money that a risk-averse person will pay to avoid taking a risk.
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Diversification
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Practice of reducing risk by allocating resources to a variety of activities whose outcomes are not closely related.
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Mutual Fund
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Organization that pools funds of individual investors to buy a large number of different stocks or other financial assets
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Investors choice problem
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Rp=Rf+b(Rm-Rf)
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Production Function
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Function showing the highest output that a firm can produce for every specified combination of inputs
q=F(K,L)
q=F(K,L)
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Production Technology
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How inputs (such as labor, capital, and raw materials) can be transformed into outputs
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Factors of production
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Inputs into the production process (ex: labor, capital, and materials)
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Average product
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output per unit of a particular input
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Marginal product
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additional output produced as an input is increased
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Marginal Rate of Technical Substitution
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Change in capital input/change in labor input
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Return to scale
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Rate at which output increases as inputs are increased proportionately
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Increasing returns to scale
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Situation in which output more than doubles when all inputs are doubled
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Constant returns to scale
answer
Situation in which output doubles when all inputs are doubled
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Decreasing return to scale
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Situation in which output less than doubles when all inputs are doubled
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