Modern Microeconomics Lecture Notes

These flashcards cover key concepts and vocabulary from the Modern Microeconomics lecture notes, focusing on economic models, demand theories, production functions, and elasticity.

Economic Model

A simplified representation of a real situation used to describe the economic behavior of individual units and their interactions.

Perfect Competition

A market structure characterized by a large number of firms producing a homogeneous product where no individual firm can affect the market price.

Monopoly

A market structure in which a single seller dominates the market with no close substitutes for its product and significant barriers to entry.

Marginal Utility

The additional satisfaction or utility gained from consuming one more unit of a good or service.

Indifference Curve

A graph showing different combinations of two goods that provide the same level of utility to a consumer.

Cardinal Utility Theory

The theory that utility can be measured and expressed in quantitative terms.

Ordinal Utility Theory

The theory positing that utility cannot be measured but can be ranked in order of preference.

Law of Demand

The principle that, all else being equal, as the price of a good decreases, the quantity demanded increases, and vice versa.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in price.

Market Demand Curve

A curve that shows the relationship between the price of a good and the total quantity demanded by all consumers in the market.

Consumer Surplus

The difference between what consumers are willing to pay for a good versus what they actually pay.

Production Function

A mathematical relationship that describes how inputs are transformed into outputs in the production process.

Isoquant

A curve that represents all combinations of inputs that produce the same level of output.

Returns to Scale

The change in output resulting from a proportional change in all inputs.

Law of Variable Proportions

In the short run, if one factor of production is increased while others are held constant, the output will initially increase but may eventually diminish.

Marginal Rate of Substitution (MRS)

The rate at which one good can be substituted for another while maintaining the same level of utility.

Elasticity of Substitution

The responsiveness of the ratio of inputs used in production to changes in the marginal rate of technical substitution.

Kinked Demand Curve

A demand curve that is characterized by different elasticities based on whether price increases or decreases.

Stock-Adjustment Principle

A demand model that suggests current demand depends on past demand levels and stocks of the commodity.

Cobb-Douglas Production Function

A specific functional form of the production function that exhibits constant elasticity of substitution between inputs.

Diminishing Returns to Scale

A situation where increasing inputs leads to less than proportional increases in output.