Term
The Law of Diminishing Utility |
|
Definition
after some point in consumption of a good, each extra unit of the good provides less and less satisfaction until we reach the point where the last unit consumed yields zero marginal utility |
|
|
Term
|
Definition
1. Utility is not the same thing as usefulness 2. Utility is subjective 3. Utility is difficult to measure |
|
|
Term
|
Definition
total satisfaction derived from consumption TU = E x Marginal Utility |
|
|
Term
|
Definition
the satisfaction gained from the consumption of one extra unit of the good
the change in total utility divided by change in quantity
lambda |
|
|
Term
At what point on a graph does the law of diminishing utility sets in? |
|
Definition
When the slope is equal to zero |
|
|
Term
How does the law of diminishing marginal utility affect the demand curve? |
|
Definition
the demand curve slopes down because the buyer is less willing to pay the same amount for another unit if there is less satisfaction |
|
|
Term
What are the assumptions of the theory of consumer behavior? |
|
Definition
1. Consumers exhibit rational behavior in their choices 2. Each consumers has a personal set of preferences |
|
|
Term
What are the choices that a consumer can make when faced with a decision on what product to buy? |
|
Definition
1. X is preferred to Y 2. Y is preferred to X 3. Indifferent |
|
|
Term
The Utility Maximizing Rule |
|
Definition
when the consumer has two goods to choose from, they will consume the goods up to the point where the marginal utility per dollar spent on product X equals the marginal utility per dollar spent on product Y |
|
|
Term
|
Definition
a consumer is in equilibrium when the marginal utility per dollar for all goods are equal |
|
|
Term
What are the two types of economic costs? |
|
Definition
1. Implicit Costs: implied costs - opportunity costs 2. Explicit Costs: real costs - accounting costs |
|
|
Term
|
Definition
Implicit Costs and Explicit Costs |
|
|
Term
|
Definition
cost of production in economic costs |
|
|
Term
|
Definition
includes only explicit costs |
|
|
Term
What is the difference between short and long run costs? |
|
Definition
All costs in the long run are variable while at least one cost is fixed in the short run |
|
|
Term
Minimum efficient scale of operation |
|
Definition
the point where economics of scale are exhausted |
|
|
Term
Why can't the long run have diminishing returns to factors? |
|
Definition
there are no fixed costs so they have returns to scale |
|
|
Term
What are characteristics of pure competition? |
|
Definition
very large number of firms no control over price very easy to enter the market no non price competition |
|
|
Term
What are characteristics of monopolistic competition? |
|
Definition
many firms differentiated products some control over price but narrow limits relatively easy entry non price competition; emphasis on advertising, etc. |
|
|
Term
What are characteristics of oligopoly? |
|
Definition
few firms standardized or differentiated product control over price is limited by mutual interdependence significant obstacles in entry great deal of non price competition |
|
|
Term
What are characteristics of pure monopoly? |
|
Definition
one firm unique products considerable control over price blocked entry non price competition |
|
|
Term
|
Definition
everyone who is willing and able to pay for the product can get it - no shortage |
|
|