Quiz 2 - Introduction to Microeconomics

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15 Terms

1
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Is anything actually free?

no, as goods go beyond their monetary value

  • Demand curve relates quantity demanded to all costs

  • ex. waiting in line

2
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law of demand

quantity purchased varies inversely with price

3
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cost-benefit principle

states that you should only do something if the benefits outweigh the costs

4
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tom has a $200 budget, he has to chose between two goods, $4 beef and $2 apples

Qb = 50 - ½ x Qa

<p>Qb = 50 - ½ x Qa</p>
5
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reservation price

a limit on the price of a good or service

6
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rational human preference

states that people’s preferences is semi-consistent and people prefer paying less

7
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wants & demands

  • Want is something people desire to have, that they may, or may not, be able to obtain.

  • Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given period

8
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utility

the total satisfaction a consumer derives from consuming any particular product

9
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marginal utility

the amount of satisfaction a consumer derives by additional consumption of the same product

<p><span>the amount of satisfaction a consumer derives by additional consumption of the same product</span></p>
10
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the law of diminishing marginal utility

states that for any good or service, the marginal utility of that good or service decreases as the quantity of a good increases

  • when you buy less, marginal utilities decrease

  • when you buy more, marginal utilities increase

11
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so how does tom find the best bundle?

  • rational spending rule: MuA/PA = MuB/PB

  • this value should be equal

as MuA increases, MuB decreases. So the quantity of beef must decrease for an optimal bundle

<ul><li><p>rational spending rule: MuA/PA = MuB/PB</p></li><li><p>this value should be equal</p></li></ul><p>as MuA increases, MuB decreases. So the quantity of beef must decrease for an optimal bundle</p>
12
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no cash on the table principle

sellers should always strive to maximize their profit by not leaving any potential value on the table during negotiation

13
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substitution effect

describes how consumers shift their demand towards cheaper alternatives when the price of a good increase or a substitute is cheaper

<p>describes how consumers shift their demand towards cheaper alternatives when the price of a good increase or a substitute is cheaper</p>
14
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income effect

the change in consumer demand for goods and services resulting from a change in real income or a substitute is cheaper

<p>the change in consumer demand for goods and services resulting from a change in real income or a substitute is cheaper</p>
15
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nominal and real price

  • nominal- the price of goods in terms of dollars

  • real- the nominal price of a good relative to the average dollar price of other goods