Week 6-9 Consumer Theory and Market Efficiency

Vocabulary flashcards covering essential terms and concepts from Consumer Theory and Market Efficiency.

Consumer Behavior

Study of how individuals decide to spend their available resources on consumption-related items.

Total Utility

The overall satisfaction or happiness derived from consuming a good or service.

Marginal Utility

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

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good, the additional satisfaction gained from each new unit decreases.

Marginal Utility per Dollar

The additional satisfaction gained per dollar spent on a good.

Indifference Curve

A curve that represents combinations of two goods that provide the consumer with the same level of satisfaction.

Marginal Rate of Substitution (MRS)

The rate at which a consumer is willing to give up one good for another while maintaining the same level of utility.

Budget Constraint

A limitation on the consumption choices of consumers based on their income and the prices of goods.

Consumer Surplus

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

Producer Surplus

The difference between what producers are willing to accept for a good or service versus what they actually receive.

Deadweight Loss (DWL)

The reduction in economic surplus resulting from market inefficiencies, such as taxes or subsidies.

Market Failure

A situation where the allocation of goods and services is not efficient, often due to externalities, information asymmetries, or market power.

Positive Externality

A beneficial effect on bystanders as a result of an individual's action that is not compensated.

Negative Externality

A harmful effect on bystanders as a result of an individual's action that is not compensated.

Free-Rider Problem

A situation where individuals benefit from resources, goods, or services without paying for them, leading to underproduction of public goods.

Comparative Advantage

The ability of an entity to produce a good at a lower opportunity cost than another entity.

Absolute Advantage

The ability of an entity to produce more of a good or service with the same resources than another entity.

Tragedy of the Commons

A situation in which shared resources are overused and depleted as individuals act in their own self-interest.

Corrective Tax

A tax aimed at reducing negative externalities by making individuals take into account the cost of the externality they create.

Cap and Trade

An environmental policy that allows entities with low emissions to sell their extra allowances to larger polluters.