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value
answer
the worth to an individual of owning an item represented by the satisfaction derived from its consumption and their willingness to pay to own it
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utility
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the satisfaction derived from the consumption of a certain quantity of a product
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budget constraint
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the limit on the consumption bundles that a consumer can afford
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choice set
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the set of alternatives available for a consumer
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indifference curve
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a curve that shows consumption bundles that give the consumer the same level of satisfaction
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total utility
answer
the satisfaction gained from the consumption of a good
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marginal utility
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the addition to total utility as a result of consuming one extra unit of a good
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diminishing marginal utility
answer
the tendency for the additional satisfaction from consuming extra units of a good to fall
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marginal rate of substitution
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the rate at which a consumer is willing to trade one good for another
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perfect substitutes
answer
two goods with straight line indifference curves
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perfect complements
answer
two goods with right angle indifference curves
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income effect
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the change in consumption that results when a price change moves the consumer to a higher or lower indifference curve
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substitution effect
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the change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution
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price-consumption curve
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a line showing the consumer optimum for two goods as the price of one of the good changes, assuming incomes and the price of the good are held constant
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explicit costs
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input costs that require an outlay of money by the firm
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implicit costs
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input costs that do not require an outlay of money by the firm
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short run
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the period of time in which some factors of production cannot be changed
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long run
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the period of time in which all factors of production can be altered
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marginal product
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the increase in output that arises from an additional unit of input
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production function
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the relationship between the quantity of inputs used to make a good and the quantity of output of that good
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diminishing marginal product
answer
the property whereby the marginal product of an input declines as the quantity of the input increases
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fixed costs
answer
costs that are not determined by the quantity of output produced
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variable costs
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costs that are dependent on the quantity of output produced
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average total cost
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ATC = TC/Q
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average fixed cost
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FC/Q
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average variable cost
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VC/Q
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TC(Q) total cost
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VC(Q) + FC
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marginal cost (change in total cost/change in quantity)
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the increase in total cost that arises from an extra unit of production
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efficient scale
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the quantity of output that minimizes average total cost
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constant returns to scale
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the property whereby long-run average total cost stays the same as the quantity of output changes
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economies of scale
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the property whereby long-run average total cost falls as the quantity of output increases
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diseconomies of scale
answer
the property whereby long-run average total cost rises as the quantity of output increases
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inter temporal choice
answer
where decisions made today can affect choices facing individuals in the future
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