Final def - Summary Microeconomic Theory PDF

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Definitions to Know For Midterm Definition Section: Chapter 3 Budget Constraint - the set of all bundles that exactly exhaust the consumer’s income at given prices - Its slope is the negative of the price ratio of the two goods Affordable Set - or feasible set: bundles on or below the budget constraint; bundles for which the required expenditure at given prices is less than or equal to the income available. Composite Good - in a choice between a good X and numerous other goods, amount of money the consumer spends on those other goods Preference ordering - a ranking of all possible consumption bundles in order of preference. – Differ widely among consumers – Four simple properties of preference ordering Indifference Curve - a set of bundles among which the consumer is indifferent Indifference map - a representative sample of the set of a consumer’s indifference curves, used as a graphical summary of her preference ordering. Marginal Rate of Substitution (MRS) - the rate at which the consumer is willing to exchange the good measured along the vertical axis for the good measured along the horizontal axis. - Equal to the absolute value of the slope of the indifference curve. Best Affordable Bundle – the most preferred bundle of those that are affordable. Corner Solution - in a choice between two goods, a case in which the consumer does not consume one of the goods. Chapter 4 Price-consumption curve (PCC) - for a good X is the set of optimal bundles traced on an indifference map as the price of X varies (holding income and the price of Y constant). Income-consumption curve (ICC) - for a good X is the set of optimal bundles traced on an indifference map as income varies (holding the prices of X and Y constant). Engel Curve - curve that plots the relationship between the quantity of X consumed and income. Substitution Effect - that component of the total effect of a price change that results from the associated change in the relative attractiveness of other goods. Income Effect - that component of the total effect of a price change that results from the associated change in real purchasing power.

Chapter 8 Production Function- the relationship that describes how inputs like capital and labor are transformed into output. Long-run- (Returns to scale) the property of a production process whereby a proportional increase in every input yields a more than proportional increase in output. (the concept of returns to scale is an inherently long-run concept) Short-run- (Law of diminishing returns)

Total product curve- a curve showing the amount of output as a function of the amount of variable output. Marginal Product (of labor, of capital)- change in total product due to one unit change in the variable input. Average Product- total output divided by the quantity of the variable input Isoquant- the set of all input combinations that yield a given level of output Marginal Rate of technical substitution (MRTS)- the rate at which one input can be exchanged for another without altering the total level of output Chapter 9 Isocost Line- a set of input bundles each of which costs the same amount Chapter 12 Dominant Strategy- the strategy in a game that produces better results irrespective of the strategy chosen by one’s opponent Nash Equilibrium- the combination of strategies in a game such that neither player has any incentive to change the strategies given the strategy of his opponent. Chapter 13 Cournot Model- oligopoly model in which each firms assumes that rivals will continue producing their current output levels Reaction function- a curve that tells the profit-maximizing level of output for one oligopolist for each amount supplied by another Bertrand Model- oligopoly model in which each firm assumes that rivals will continue charging their current prices....