Economics Semester I

Curves and the type of shit I don't get

Utility

Satisfaction received from consumption

Diminishing marginal utility

As consumption increase, satisfaction from consumption decreases

Total utility

total satisfaction received from consumption

Marginal utility

utility derived from consuming one more unit of the good and service

equi-marginal principle

Consumers maximized their utility where their valuation for each product is the same

indifference curves

show all combinations of two goods that give consumer equal satisfaction

marginal rate of substitution

the rate at which the consumer is willing to substitute a good for another

budget line

combinations of two goods that can be purchased with given income and given prices

substitution effect

following a price change, a consumer will substitute the cheaper good for one that is relatively more expensive

income effect

following a price change, a consumer has higher real income and will purchase more of this good

Giffen good

type of inferior good where the quantity demanded falls as price falls and quantity demanded increases as price changes

Economic efficiency

scarce resources are used in the most efficient way to produce maximum output

Productive efficiency:

firm is producing at lowest possible cost

Allocative efficiency:

price is equal to marginal cost; firms are making goods/services most demanded by consumers

Marginal cost:

addition to total cost when making 1 extra unit of output

Pareto optimality

impossible to make someone better off w/o making someone else worse off

Dynamic efficiency:

resources are allocated efficiently over time

Externality:

actions of a producer/consumer give rise to side effect on others not directly involved in the action

Third parties:

not directly involved in the decision-making 

Negative externalities:

side effects of an action have a negative impact that creates costs on third parties

Positive externalities:

the side effects of an action that have a positive impact to third parties

Private costs:

costs incurred by a consumer/firm that makes goods/services

Private benefits:

benefits accrue to the consumer/firm that produces a good/service

External costs:

costs incurred and paid by third parties

External benefits:

benefits received by third parties

Social costs:

total costs of an action

Social benefits:

total benefits of an action

Cost benefit analysis

Decision taking into account costs and benefits

Shadow price

There is no established market price available

Marginal product

Change in output of using one more unit of production

Law of diminishing returns

Output from an additional unit of a product leads to a fall in the marginal product

Average product

Total product divided by total number of employees

Fixed cost

Not dependent on output in short run

Variable cost

Dependent on output in short run

Increasing returns to scale

Output increases proportionately faster than increase in factor inputs

Decreasing returns to scale

factor inputs increases proportionately faster than increase in output

Minimum efficient scale

Lowest level of output which costs are minimized

Price taker

Firm not able to influence the market price

Price maker

Firm that can choose what price they can sell the product at

Perfect competition

Ideal market structure with many buyers, identical products, no entry barriers

Monopolistic competition

Many firms, differentiated products and few entry barriers

Oliogopoly

Few firms and high barriers to entry

Pure monopoly

One seller in the market

Natural monopoly

With falling long-run average costs, it makes sense to have one firm to provide the service