Prelim 1 - Custom Scholars
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# Prelim 1

question
utility function
captures a person's preferences over different bundles of goods,and gives each bundle a value
question
cardinal utility
The utility value is meaningful, a bundle that gives us U= 4 brings twice as much value/happiness as a bundle that gives us U= 2
question
ordinal utility
Only the ordering of bundles matters
question
E|>1:
Elastic
question
|E|= 1:
Unit Elastic
question
|E|<1:
Inelastic
question
own price elasticity of demand
what is the percentage decrease in quantity demanded given a percentage increase in price
question
cross-price elasticity
Given a percentage increase in the price of another product, what is the percentage change in the quantity demanded for my product?"
question
an elasticity measuring the effect of an increase or decrease in advertising on a market
question
perfect complements
When two goods are complements, they experience joint demand - the demand of one good is linked to the demand for another good.
question
perfect substitutes
identical products
question
cobb-douglas
a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs and the amount of output that can be produced by those inputs
question
relationship between quantity demanded and price
(inverse) price increases, quantity demanded decreases
question
demand shifters
prices of other goods
income
expectations
populations
consumer tastes and preferences
question
complementary goods relationship with price
(inverse) price increases, demand decreases
question
supplementary goods relationship with price
(direct) price increases, demand increases
question
normal good relationship with income
(direct) income increases, demand increases
question
inferior good relationship with income
(inverse) income increases, demand decreases
question
supply shifters
input prices
technology
number of firms
question
Perfect Substitutes Utility Function
U(x,y) = ax + by
question
Perfect Complements Utility Function
U(X,Y) = min{aX, bY}
question
Cobb-Douglas Utility Function
u(X,Y) = X^aY^b
question
market rate of substitution
the slope of the budget constraint
question
marginal rate of substitution
the slope of the indifference curve
question
subsitution effect
When the relative price of one good increases, we'll substitute toward the other good.
question
income effect
When prices go up, our purchasing power decreases, so we become effectively poorer
question
Elasticity
What will the percentage change in X be given a 1% change in Y
question
EQx,Py>0 (cross price elasticity)
substitutes
question
EQx,Py<0
complements
question
EQx,Py= 0
No relationship
question
income elasticty of demand
Given a percentage change in income, what is the percentage change in the quantity demanded for my product?
question
EQx,M>0 (income elasticity)
normal good
question
EQx,M<0 (income elasticity)
inferior good
question
Isoquant Curve
a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output
question
marginal rate of technical substitution
slope of isoquant

-MPL/MPK
question
Diminishing Marginal Rate of Technical Substitution
As we decrease the use of one input, we'll have to use increasing amounts of the other input.
question
isocost line
shows the set of inputs that result in the same total cost.
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question
utility function
captures a person's preferences over different bundles of goods,and gives each bundle a value
question
cardinal utility
The utility value is meaningful, a bundle that gives us U= 4 brings twice as much value/happiness as a bundle that gives us U= 2
question
ordinal utility
Only the ordering of bundles matters
question
E|>1:
Elastic
question
|E|= 1:
Unit Elastic
question
|E|<1:
Inelastic
question
own price elasticity of demand
what is the percentage decrease in quantity demanded given a percentage increase in price
question
cross-price elasticity
Given a percentage increase in the price of another product, what is the percentage change in the quantity demanded for my product?"
question
an elasticity measuring the effect of an increase or decrease in advertising on a market
question
perfect complements
When two goods are complements, they experience joint demand - the demand of one good is linked to the demand for another good.
question
perfect substitutes
identical products
question
cobb-douglas
a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs and the amount of output that can be produced by those inputs
question
relationship between quantity demanded and price
(inverse) price increases, quantity demanded decreases
question
demand shifters
prices of other goods
income
expectations
populations
consumer tastes and preferences
question
complementary goods relationship with price
(inverse) price increases, demand decreases
question
supplementary goods relationship with price
(direct) price increases, demand increases
question
normal good relationship with income
(direct) income increases, demand increases
question
inferior good relationship with income
(inverse) income increases, demand decreases
question
supply shifters
input prices
technology
number of firms
question
Perfect Substitutes Utility Function
U(x,y) = ax + by
question
Perfect Complements Utility Function
U(X,Y) = min{aX, bY}
question
Cobb-Douglas Utility Function
u(X,Y) = X^aY^b
question
market rate of substitution
the slope of the budget constraint
question
marginal rate of substitution
the slope of the indifference curve
question
subsitution effect
When the relative price of one good increases, we'll substitute toward the other good.
question
income effect
When prices go up, our purchasing power decreases, so we become effectively poorer
question
Elasticity
What will the percentage change in X be given a 1% change in Y
question
EQx,Py>0 (cross price elasticity)
substitutes
question
EQx,Py<0
complements
question
EQx,Py= 0
No relationship
question
income elasticty of demand
Given a percentage change in income, what is the percentage change in the quantity demanded for my product?
question
EQx,M>0 (income elasticity)
normal good
question
EQx,M<0 (income elasticity)
inferior good
question
Isoquant Curve
a curve that shows all the combinations of two inputs, such as capital and labor, that will produce the same level of output
question
marginal rate of technical substitution
slope of isoquant

-MPL/MPK
question
Diminishing Marginal Rate of Technical Substitution
As we decrease the use of one input, we'll have to use increasing amounts of the other input.
question
isocost line
shows the set of inputs that result in the same total cost.

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