Econ Review Test 1

# Econ Review Test 1 - Chapter 1 Vocab Market Exogenous...

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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 gov’t 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)
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