Microeconomics_notes_2021-2022

Economics

The science that deals with the allocation of scarce resources to satisfy unlimited human wants.

Microeconomics

The study of the economic behavior of individual economic decision makers.

Exogenous variable

A variable whose value is taken as given in a model and is not influenced by other variables.

Endogenous variable

A variable whose value is determined or influenced within the model.

Constrained optimization

An analytical tool for making the best choice considering any possible limitations or restrictions.

Objective function

The relation that the decision maker seeks to maximize or minimize.

Marginal reasoning

The approach that tells us how a dependent variable changes as a result of adding one unit of an independent variable.

Equilibrium

A state or condition that will continue indefinitely as long as factors exogenous to the system remain unchanged.

Demand curve

A curve that reflects the willingness to pay for a good or service, such as apartments.

Budget constraint

The set of affordable bundles based on the consumer's income and the prices of goods.

Composite good

A good that represents the consumption of one particular good while accounting for everything else spent.

Opportunity cost

The cost of forgoing the next best alternative when making a decision.

Completeness

An assumption about preferences that states any x-bundle and y-bundle can be compared, where either is preferred.

Transitivity

An assumption stating if one bundle is preferred over a second, and the second is preferred over a third, then the first is preferred over the third.

Indifference curves

Graphs that represent different bundles of goods that provide the same level of utility to a consumer.

Marginal Rate of Substitution (MRS)

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

Utility function

A mathematical representation that assigns a number to every possible consumption bundle based on preference.

Ordinal utility

A way of representing utility where only the order of preferences is preserved.

Cardinal utility

A theory suggesting that the size of the utility difference between two bundles reflects the preference intensity.