Consumer Choice and Production Concepts

These flashcards cover key economic concepts related to consumer choice, utility maximization, and production technology.

Utility

Satisfaction or enjoyment derived from consuming goods and services.

Marginal Utility (MU)

The change in total utility a person receives from consuming one additional unit of a good or service.

Budget Constraint

The limited amount of income available to consumers to spend on goods and services.

Income Effect

The change in the quantity of a good that results from the impact of a change in price on consumer purchasing power.

Substitution Effect

The change in quantity demanded of a good due to a change in price making the good more or less expensive relative to other goods.

Giffen Good

A good with an upward-sloping demand curve, where demand increases as the price increases.

Celebrity Endorsements

Marketing strategy where firms use famous individuals to promote products.

Network Externalities

Situations where a product’s usefulness increases as more people use it.

Market Failure

A situation where the allocation of goods and services is not efficient, often resulting in locked-in inferior products.

Behavioral Economics

Study of economic decisions that deviate from traditional rational behavior due to various biases.

Endowment Effect

The tendency to value an owned good more highly than an equivalent unowned good.

Sunk Cost

A cost that has already been incurred and cannot be recovered.

Indifference Curve

A curve showing the combinations of consumption bundles that yield the same level of utility.

Technology

The methods and processes used by a firm to produce goods and services.

Technological Change

Positive or negative change in a firm's ability to produce output with a given quantity of inputs.

Economic Short Run

A period during which at least one of a firm's inputs is fixed.

Variable Costs

Costs that change with the level of output.

Fixed Costs

Costs that remain constant regardless of the level of output.

Marginal Product of Labor

The additional output resulting from hiring one more worker.

Law of Diminishing Returns

Principle stating that adding more of a variable input to a fixed input will eventually yield lower additional output.

Long-Run Average Cost Curve

Graph showing the lowest cost at which a firm can produce a given output in the long run.

Economies of Scale

The reduction in average costs as a firm increases its level of output.

Diseconomies of Scale

A situation where a firm's long-run average costs rise as the firm increases output.

Isoquant

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

Isocost Line

A line that shows all combinations of two inputs that have the same total cost.