Consumers and Incentives - Concepts/Vocab
______ is the most important incentive that economists study
Price
Andrew's income is $100 per week. This week Andrew bought 5 cucumbers and lego sets. Cucumbers cost $2 each and lego sets cost $9 each. Is Andrew above or below his Budget Line?
Andrew is right on his budget line - he spent all $100 of his income
What is the goal of the seller?
Maximize profit
The point where the buyer's maximum price they are willing to pay meets the minimum price a seller is willing to accept for a good or service is called
Reservation Price
The cost of a consumer's consumption can be no more than the consumer's income is called
Budget Constraint
If Andrew bought the perfect balance of cucumbers and lego sets that maximized his utility (enjoyment) - he would achieve the ________ consumption bundle
Optimal
This type of cost does not change as output changes
The decrease in social surplus that results from a market distortion
Deadweight Loss
Aaron usually eats eggs for breakfast. When the price of eggs skyrocketed last year, Aaron started eating pancaked for breakfast instead because they were less expensive. This change in consumer choice is known as
Substitution Effect
If Andrew buys an extra lego set and sacrifices the purchase of 5 cucumbers - what is Andrew's Opportunity Cost?
5 cucumbers
If John was selling Honeycrisp Apples and he had a high Price Elasticity of Supply - what would this mean?
He is willing to change his cost in response to fluctuations in market price
The concept that no one can be made better off without making someone else worse off is know as ___________________________
The Pareto Efficiency
The Buyer's Problem is made up of what 3 parts?
1. What you like
2. Prices
3. Budget
Fill in the blanks using the Income Effect - Oreos go down in price, the consumer's purchasing power (increases/decreases), consumers buy (more/less) Oreos
Increases, more
Which of the following is NOT true of a perfectly competitive market:
1. No buyer or seller in the market is big enough to influence market price
2. Sellers in the market produce multiple different goods
3. There is free entry and exit in the market
2. Sellers in the market produce multiple different goods
Consumer Surplus + Producer Surplus = ___________
Write the Marginal Utility Per Dollar equation on the whiteboard
MUgood divided by Pgood
Marginal Utility divided by Product Price
Caitlyn owns a restaurant that is going to close for a month while she goes on vacation in California. She will not have to pay (variable/fixed) costs while her restaurant is closed, but she will have to pay (variable/fixed) costs
Variable, fixed
Explain the Invisible Hand
Individuals pursuing their own self-interest unintentionally benefit society by guiding resources to their most valued use through market competition