definitions_midterm1 - demand Substitutes: two goods for...

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Definitions for First Midterm Economics 304K:Principles of Microeconomics Prof. Meg Ledyard Absolute advantage : the ability to produce more of a good in a given amount of time. Comparative advantage : The ability to produce a good with a lower opportunity cost Opportunity cost : How much of one good you have to give up to produce a unit of the other good. Quantity demanded: the amount of a good that a buyer is willing and able to purchase. Demand : A graph of the relationship between price and quantity demanded. Quantity supplied: the amount of a good that sellers are willing and able to sell. Supply: A graph of the relationship between price an quantity supplied. Inferior good : a good for which, all else equal, a fall in income leads to an increase in demand Normal good : a good for which, all else equal, a fall in income leads to a decrease in
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Unformatted text preview: demand Substitutes: two goods for which an increase in the price of one leads to an increase in the demand for the other. Compliments : two goods for which an increase in the price of one leads to a decrease in the demand for the other. Equilibrium: a price (P*) and quantity (Q*) such the Q S = Q D = Q*. Price ceiling: a legal maximum on the price at which a good can be sold. Price floor: a legal minimum on the price at which a good can be sold. Consumer Surplus: a buyers willingness to pay minus the amount the buyer actually pays Producer Surplus: the amount a seller is paid minus the sellers costs. Efficiency : The property of a resource allocation of maximizing total surplus received by all members of society. Equity: The fairness of the distribution of well-being among the members of society....
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