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Consumer's Surplus
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The difference between the value to the consumer of the quantity of commodity X purchased and the amount that the market requires the consumer to pay for that quantity of X.
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Inferior good
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A commodity whose quantity demanded falls when the purchaser's real income rises, all other things remaining equal.
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"law" of demand
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states that a lower price generally increases the amount of a commodity that people in a market are willing to buy and also tends to increase the number of buyers. Therefore, for most goods, market demand curves have negative slopes.
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"Law" of diminishing marginal utility
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Asserts that additional units of a commodity are worth less and less to a consumer in money terms. As the individual's consumption increases, the marginal utility of each additional unit declines.
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Marginal analysis
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A method for calculating optimal choices- the choices that best promote the decision that best promote the decision maker's objective. It works by testing whether, and by how much, a small change in a decision will move things towards or away from the goal.
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Marginal Utility
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A commodity to a consumer (measured in money terms) is the maximum amount of money that she or he is willing to pay for one more unity of that commodity.
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Market demand curve
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Shows how the total quantity of some product demanded by all consumers in the market during a specified period of time changes as the price of that product changes, holding all other things constant.
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Total Monetary utility
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A quantity of a good to a consumer (measured in money terms) is the maximum amount of money that he or she is willing to give up in exchange for it.
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Complements
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Two goods; when a increase in the quantity consumed of one increases the quantity demanded of the other, all other things remaining constant.
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Cross elasticity of demand
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For product x to change in the price of another product, Y, is the ratio of the percentage change in quantity demanded of X to the percentage change in the price of Y that brings about the change in quantity demanded.
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(price) elasticity of demand
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Is the ratio of the percentage change in quantity demanded to the percentage change in price that brings about the change in quantity.
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Elastic, inelastic, and unit-elastic demand curves
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A given percentage price change leads to a larger percentage change in quantity demanded.
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Income elasticity of demand
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The ratio of the percentage change in quantity demanded to the percentage change in income.
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Optimal decision
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The one that best serves the objective of the decision maker, whatever those objectives may be. It is selected by explicit or implicit comparison with the possible alternative choices. The term optimal connotes neither approval nor disapproval of the objective itself.
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Substitutes
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Two goods; if an increase in the quantity consumed of one cuts the quantity demanded of the other things remaining constant.
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Average physical product (APP)
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The total physical product (TPP) divided by the quantity of input. thus, APP=TPP/X, where X = the quantity of input.
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Economies of scale (increasing returns to scale)
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When all input quantities are increased by X percent, the quantity of output rises by more than X percent.
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Fixed Cost
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The cost of an input whose quantity does not rise when output goes up, one that the firm requires to produce any output at all. The total cost of such when the output changes.
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Long run
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A period of time long enough for all of the firm's current commitments to come to an end.
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Marginal physical product (MPP)
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The increase in total output that results from a one-unit increase in the input quantity, holding the amounts of all other inputs constant.
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Marginal revenue product
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The additional revenue that the producer earns from the increased sales when it uses an additional unit of the input.
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Short run
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A period of time during which some of the firm's cost commitments will not have ended.
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Total physical product (TPP)
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The amount of output it obtains in total from a given quantity of input.
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Variable cost
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Any other cost of the firms operation that is not a fixed cost.
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