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Unformatted text preview: Chapter 1 Vocab- Market Exogenous variable The price is taken as determined by factors not discussed in a particular model Endogenous variable - Price that is determined by forces described in a particular model Equilibrium principle Prices adjust until the amount that people demand of something is equal to the amount that is supplied Comparative statics Comparing 2 static equilibriums without worrying about how the market moves from one equilibrium to another Pareto improvement Finding a way to make some people better off without making anybody else worse off Pareto inefficient If an allocation allows for a Pareto improvement; Pareto efficient An allocation such that no Pareto improvements are possible Chapter 2 Vocab- Budget Constraints Composite good Stands for everything else that a consumer might want to consume other than good 1 Budget line the set of bundles that costs exactly M; (p1)(x1) + (p2)(x2) = M.; slope = -p1/p2; Opportunity cost slope of the budget line Numeraire price Setting one of the prices to 1; (p1/m)*x1 + (p2/m)*x2 = 1 Quantity tax - consumer has to pay certain amount to the govt for each unit of good purchased (15cents/gallon gas). Changes price from p1 to p1+t. Value Tax- Tax on the value of a good, rather than the quantity purchased of a good. Usually expressed in percentage terms. (sales tax) (Ad valorem) Quantity Subsidy- the government gives an amount to the consumer that depends on the amount of the good purchased. (p1-s) Lump sum tax Government takes away some fixed amount of money, regardless of the individuals behavior...
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- Spring '06