Microeconomics Lecture Notes Flashcards

Flashcards based on Microeconomics Lecture Notes from the University of Konstanz

Economic Agent

Any group or individual that makes choices, such as consumers, firms, parents, politicians, etc.

Economics

Economics studies how agents make choices among scarce resources and how those choices affect society.

Microeconomics

The study of individuals, firms, and government.

Macroeconomics

The study of the whole economy.

Optimization

Making the best choice possible with given information.

Equilibrium

When everyone is optimizing; no one would be better off with a different choice.

Empiricism

Using data to figure out answers to interesting questions.

Food Stamps

Coupons that can be legally exchanged only for food.

Monotonicity (Well-Behaved Preferences)

More of any commodity is always preferred (i.e., no satiation and every commodity is a good).

Convexity (Well-Behaved Preferences)

Mixtures of bundles are (at least weakly) preferred to the bundles themselves.

Utility Function Definition

A utility function u(x) represents a preference relation if and only if: xʹ ≿ xʺ ⇔ u(xʹ) ≥ u(xʺ), xʹ ≻ xʺ ⇔ u(xʹ) > u(xʺ), xʹ ~ xʺ ⇔ u(xʹ) = u(xʺ)

Indifference Curve

A curve that contains equally preferred bundles with the same utility level.

Cobb-Douglas Utility Function

Any utility function of the form with a > 0 and b > 0.

Elasticity

Measures the “sensitivity” of one variable with respect to another.

Opportunity Cost

What you give up to get something else.

Free Rider Problem

Exists when an individual or group is able to enjoy the benefits of a situation without incurring the costs

Pareto Efficiency

A Pareto outcome allows no “wasted welfare.” I.e. the only way one person’s welfare can be improved is to lower another person’s welfare.

Equilibrium

A situation when no one benefits by changing his/her behavior

Cost-Benefit Analysis

Analysis of costs versus benfits