Microeconomics Chapter Two

A diagram that shows the possible choices.

Another name for the budget constraint.

The level of satisfaction of pleasure that people receive from their choices.

A payment to make up for the risk of not being repaid in full.

Rise in the overall level of prices.

The cost of having to wait for repayment

When interest payments accumulate, so that in later time periods, the interest rate is paid on the interest that has been earned and reinvested in previous years.

Whatever must be given up to obtain something that is desired.

Comparing the benefits and costs of choosing a little more or a little less of a good.

As a person receives more of a good, the marginal utility from each additional unit of the good is smaller that from the previous one.

Costs that were incurred in the past and cannot be recovered, and thus should not affect current decisions.

A diagram that shows the combinations of output that are possible for an economy to produce.

As additional increments of resources are added to producing a god or service, the marginal benefit from those additional increments will decline.

When it is impossible to get more of something without experiencing a trade-off of less of something else.

When it is impossible to produce more of one good without decreasing the quantity produced of another good.

When the mix of goods being produced represents the allocation that society most desires.

Statements that describe the world as it is.

Statements that describe how the world should be.

1.) the consumption choice of what quantities of goods to consume
2.) the labor-leisure choice of what quantity of hours to work.
3.) the intertemporal choices that involve costs in the present and benefits in the future, or benefits in the present and costs in the future

1.) risk premium
2.) inflation
3.) time value of money

(Present amount) x (1 - Interest Rate)^number of years = Future amount

Because choices outside of PPF are unattainable, and choices inside the PPF are wasteful. Over time, a growing economy will tend to shift the PPF outwards