ECON 251

1. Explicit Cost: The direct monetary expense of a decision.
2. Implicit Cost: The indirect expense of a decision that arises from a trade-off.

3. Absolute Advantage: The ability to complete a task in a shorter amount of time than someone else.

4. Comparative Advantage: The ability to complete a task with lower opportunity cost than someone else.

5. Production Possibilities Frontier: A curve that represents the maximal production available if all resources are used efficiently.

6. Total Optimization: The goal of optimizing by considering Total Benefits and Total Cost. 7. Marginal Optimization: The goal of optimizing by considering Marginal Benefits and

Marginal Cost.

8. Marginal Benefit: The incremental change in Total Benefit from an additional unit of something.

9. Marginal Cost: The incremental change in Total Cost from an additional unit of something. 10. Net Benefits: Total Benefits minus Total Cost.

11. The First Equimarginal Principle: The principle that states Net Benefits will be maximized when Marginal Benefits are equal to Marginal Cost.

12. Sunk Cost Fallacy: The willingness of humans to consider costs that have already happened and cannot be reverse in making future decisions.

13. Anchoring: The tendency of humans to have their valuation of a good or service influenced by seemingly unrelated mental processing of numbers.

14. Framing: A technique used by firms to increase a consumer’s willingness to pay for a good or service by offering it alongside other options.

15. Decoys: Used in Framing by firms as the other option that the firm doesn’t want their customers to pick even though they are offering it.

16. Social Value: The value humans place on actions that do not have direct economic consequence.

17. Economic Value: The value humans place on actions that have direct economic consequence.

18. The Gambler’s Fallacy: The tendency of humans to see patterns and believe those patterns will stop occurring.

19. The Hot-hand Fallacy: The tendency of humans to see patterns and believe those patterns will continue.

20. Information Asymmetry: When one side of a transaction has more information than the other.

21. Expected Value: The hypothetical value of a decision computed by considering all possible outcomes with respect to their likelihood (probability) of occurring.

1. Utilitarianism: A school of philosophical thought which asserts that human decisions are made in an effort to increase satisfaction and that in such an effort these decisions are generally regarded as good for society.

2. Social Welfare Function: A mathematical consideration of societal happiness as some function of the happiness of each person in society.

3. Human Prosperity: A general notion of the overall level of social progress.

4. Utilitarian Social Welfare Function: A version of the Social Welfare Function that seeks to maximize the aggregate level of social happiness by assuming each person cares for their own happiness.

5. Social Utilitarian Social Welfare Function: A version of the Social Welfare Function that seeks to maximize the aggregate level of social happiness by assuming each person cares for their own happiness and the happiness of others.

6. Rawlsian Social Welfare Function: A version of the Social Welfare Function that seeks to maximize the happiness of the individual with the least amount of happiness.

7. The Social Contract: A democratically determined agreement among society as to the general rules and norms to be followed to achieve success under a Social Welfare Function.

8. Social Safety Net: A form of economic security meant to prevent members of society from economic misery.

9. Social Efficiency: A general notion of society maximizing its Social Welfare Function.
10. Pareto Frontier: A mathematical representation of the maximal level of societal happiness

given by Economic Efficiency.

11. Diminishing Marginal Utility: The idea that as you consume more of a good or service the marginal utility of each incremental unit decreases.

12. Pareto Efficient: An outcome is Pareto Efficient if it lies on the Pareto frontier.
13. Pareto Inefficient: An outcome is Pareto Inefficient if it lies to the left of the Pareto

Frontier.

14. Pareto Improvement: A movement from a Pareto Inefficient position to a Pareto Efficient position that does not reduce any one person's happiness.

15. Economic Efficiency: Efficiency that arises from buyers and sellers voluntarily engaging in transactions.

16. First Fundamental Welfare Theorem: Competitive markets maximize economic efficiency and lead to Pareto efficient outcomes.

17. Equity vs. Efficiency Trade-off: The generally accepted idea that to make an economy more efficient requires less equity and vice versa.

18. Second Fundamental Welfare Theorem: Any outcome can be redistributed to another Pareto Efficient outcome.

19. Veil of Ignorance: A philosophical idea that poses decisions should be made assuming that people do not know what place in society they occupy.

20. Consumer Theory: The idea that consumers maximized utility subject to a budget constraint.

21. Utility: The economic term for human satisfaction or happiness.

22. Utility Function: A mathematical representation of human utility.

23. Consumption: The act of enjoying a good, service, or amenity

24. Law of Diminishing Marginal Returns: The idea that as consumption increases the returns of that consumption will decline.

25. Marginal Utility: The incremental change in utility after a unit of consumption.
26. Indifference Curves: A mathematical representation Of utility levels where each bundle on

a curve yields the same level of utility.

27. Budget Constraint: A person's income that restricts their ability to consume.

28. Choice Set: All the possible bundles that are affordable to an individual.

29. Marginal Rate of Substitution: The willingness about consumer to switch consumption between two goods based on their relative level of marginal utility.

30. Optimal Bundle: The bundle that maximizes utility and spends all income.
31. Reservation Price: The maximum willingness to pay a consumer has for a good, service, or

amenity.

32. Demand Curve: The mathematical representation of reservation prices and their subsequent quantity demand.

33. Normal Good: A good who's demand rises with income. 34. Inferior Good: A good whose demand falls as income rises.

35. Complement Good: Goods that are often purchased and consumed in conjunction with one another.

36. Substitute Good: Goods that satisfy similar wants and are generally interchangeable with one another.

37. Consumer Surplus: The added value that flows to consumers when they pay prices below their reservation price.

38. Total Expenditure: The total amount of money spent on consumption of a say one thing good in the market.

39. Price Elasticity of Demand: The extent to which changes in price lead to changes in quantity demand along a demand curve.

40. Cross-price Elasticity: The extent to which changes in the price of one good lead to changes in quantity demand for another good.

41. Income Elasticity of Demand: The extent to which changes in income lead to changes in quantity demand for a good.

1. Competitive Markets: Markets that have enough buyers and sellers as well as available information such that market prices are not chosen, but set by the market.

2. Neo-Classical Assumptions: The traditional view of markets which holds that consumers maximize utility, producers maximize profits, and individuals are in pursuit of their own rational self-interest.

3. The Producer’s Problem: To maximize profits relative to market prices and costs. 4. Profits: Total revenue minus total cost.

5. Production Function: A mathematical representation of a firm's ability to use capital and labor to make a final good.

6. Capital: Physical inputs used in the production of goods and services.

7. Labor: The human effort required in the production of goods and services.

8. Inputs: The capital and labor units used in the production of a firm's output

9. Quantity Produced: The amount of a good or service brought to market by affirm relative to the market price and the firm's costs.

10. Capital Intensity: The extent to which a firm’s production function relies on capital inputs. 11. Labor Intensity: The extent to which a firm's production function relies on labor inputs.

12. The Supply Chain: The entire process from resource extraction to retail sale that maps the life-cycle of a good or service.

13. Returns to Scale: Extent to which a firm can increase its production of a single good and change its average cost.

14. Returns to Scope: The extent to which a firm can increase its production of different goods to change its average cost.

15. Vertical Integration: The process of a firm integrating with another firm that is upstream or downstream within the same supply chain.

16. Horizontal Integration: The process of a firm integrating with another firm that is a competitor.

17. Total Cost: The total expenditure relative to an amount of quantity produced.

18. Total Revenue: The amount of economic returns that flow to firms when they sell goods or services.

19. Marginal Revenue: The incremental change in total revenue when a firm sells one additional unit of its good or service.

20. Marginal Cost: The incremental change in total cost when a firm produces one additional unit of its good or service.

21. Variable Cost: Costs that change relative to how much a firm produces.
22. Fixed Cost: Costs that do not change regardless of how much a firm produces.

23. Barrier to Entry: Costs or some other economic issue that reduces the likelihood of other firms entering a market.

24. Willingness to Accept: The reservation price of a firm which details the minimum acceptable price they will require for their good or service.

25. Cost Minimization: A form of profit maximization that relies on bringing costs down as much as possible.

26. The Supply Curve: A schedule of prices and their relative quantity produced.
27. Marginal Cost Pricing: In competitive markets firms will typically sell their products for

how much it cost them to produce their last unit.

28. Market Equilibrium: The point in a market where supply equals demand and the market clears.

29. Equilibrium Price: The subsequent price produced by market equilibrium.
30. Equilibrium Quantity: The subsequent quantity produced by market equilibrium.

31. Producer Surplus: The added value that flows to producers who are able to sell their product for more than their minimum willingness to accept.

32. Price Elasticity of Supply: Extent to which changes in a good’s price will lead to changes in quantity supply in a market.

1. The Invisible Hand: the notion that market forces efficiently push and pull capital and labor about the economy.

2. Creative Destruction: the idea that old inefficient industries give way to new efficient industries over time.

3. Structural Unemployment: unemployment that arises when the skills of workers do not align with the skills demanded by firms.

4. Unemployment Assistance: a form of government intervention that seeks to soothe the problem of structural unemployment.

5. Market Power: when a firm or firms have some significant effect over market prices and markets themselves.

6. Partial Equilibrium: analysis that considers the equilibrium effects of a single market.
7. General Equilibrium: analysis that considers the equilibrium effects across many markets

that are interdependent.
8. Capital Market: the market for physical inputs used in production.

9. Business Fixed Investment: The act of purchasing and/or financing capital for use in production or expansion of existing productive capacity.

10. Labor Market: the market for employees.

11. Human Capital: the skills that workers derive from education, training, and or experience.

12. Physical Capital: capital that is made by humans.

13. Natural Capital: capital that is naturally occurring in nature.

14. Financial Capital: financing of capital purchases.

15. Rental Rate of Capital: the market price of capital inputs.

16. Depreciation: the process by which a unit of capital has its value diminished overtime from use and technological advancement.

17. Marginal Product of Capital: the incremental increase and production that arises from using one additional unit of capital.

18. Labor Demand: the employer side of the labor market. 19. Labor Supply: the employee side of the labor market.

20. Marginal Product of Labor: the incremental increase in production that it rises from employing one additional unit of labor.

21. Market Wage: the equilibrium wage rate set my competitive labor market.