Microeconomics I Lecture 3: Technology & Incentives

Flashcards based on key concepts from the lecture on Microeconomics, focused on technology, incentives, and economic models.

Relative Prices

The price of one good or service in comparison to another, often represented as a ratio.

Incentives

Factors that motivate individuals to act in certain ways or make specific economic decisions.

Reservation Option

The next best alternative available when making a decision.

Economic Rent

The net benefit received from a chosen option minus its opportunity cost.

Isocost Line

A line that represents all combinations of inputs that can be purchased for a given total cost.

Innovation Rent

Excess profits derived from successfully exploiting an invention.

Endogenous Variables

Variables whose values are determined within the model.

Exogenous Variables

Variables whose values are determined outside the model.

Ceteris Paribus

A Latin phrase meaning 'all other things being equal,' used in economic models to isolate variables.

Opportunity Cost

The value of the next best alternative forgone when making a decision.

Economic Cost

The total cost of an action, combining direct costs and opportunity costs.

Production Technology

The method or process that a firm uses to convert inputs into outputs.

Factors of Production

Resources used in the production of goods and services, including labor, materials, capital, and energy.

Production Function

The relationship that describes the quantity of output produced based on the quantities of inputs used.

Fixed-Proportions Technology

A type of production process that requires fixed ratios of inputs to produce a specific output.

Economic Model

A simplified representation of an economic situation used to analyze and predict economic behavior.

Model-Building Steps

The process of constructing a model which includes question definition, simplification of conditions, action determination, and outcome analysis.

Equilibrium

A state in an economic model where all forces are balanced, and no variable tends to change without external influence.

Technological Progress

Improvements or advancements in technology that increase efficiency and productivity.

Malthusian Trap

A situation in which population growth outpaces agricultural production, leading to poverty and stagnation.