Microeconomics - Chapter 5: Consumers and Incentives

Flashcards covering key concepts from Chapter 5 on Consumers and Incentives in Microeconomics.

Consumer Surplus

The difference between what a buyer is willing to pay for a good and what the buyer actually pays.

Demand Elasticity

A measure of how sensitive one variable is to changes in another.

Optimizing Buyer

A buyer who makes decisions at the margin, weighing the added benefits against the additional costs.

Budget Constraint

A representation of all the possible combinations of goods that a consumer can purchase given their income and the prices of goods.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Negative Slope of Demand Curve

Indicates that as the price of a good decreases, the quantity demanded increases, and vice versa.

Income Elasticity of Demand

Measures how much the quantity demanded of a good changes in response to a change in income.

Cross-Price Elasticity of Demand

Measures how much the quantity demanded of one good changes when the price of another good changes.

Elastic Demand

When the percentage change in quantity demanded is greater than the percentage change in price.

Inelastic Demand

When the percentage change in quantity demanded is less than the percentage change in price.