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ECON NOTECARD - Substitution effect the change in the...

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Substitution effect - the change in the amount of a good that would be consumed as the price of that good changes, holding constant all other prices and the level of utility. Choice Function - tell us how the firms optimal choice of output varies with a parameter. The comparative static derivative is found by differentiating the choice function. 2. Not choose an interior solution because the budget constraint will intersect with a higher indifference curve and will only choose a corner solution. Bang per buck - The extra utility per dollar spent on good x is equal to to extra utility per dollar spent on good y. MUx/Px=MUy/Py. Consumer Surplus - a measure of net monetary benefits from a consuming good. It is the difference between what a consumer is willing to pay for a specific quantity of a good and what the consumer will actually pay. Producer Surplus - a measure of monetary benefit that producers derive from producing goods at a particular price. Supply curve is the marginal cost of producing an extra unit and demand curve is what a consumer is willing to pay for a certain quantity of a good. Network Effect - an individual’s demand for a good depends on other people’s consumption of a good. Direct Network Effect - value of a good to a user is an increasing/decreasing function of the number of other users of a product. Indirect - increased wage of a product spawns production of increasing valuable complementary products. Externality -an action taken by one agent has different effect on the welfare of another agent.
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