1. Relative price change- Is the decrease in value of a specific product allowing for a
different budget line and higher utility. It is expressed as the difference between the two
real budget lines on the line.
2. Income effect- When the pric
1. First welfare theorem- known as Adam Smiths Invisible Hand Theorem, competitive
markets tend toward an efficient allocation of resources. The theorem supports a case for
non-intervention in ideal conditions: let the markets do the work and
1. Physical v. social sciences- Physical science seeks to clarify the rules that govern the
natural world by applying an empirical and scientific method to the study of the universe.
The term natural sciences is used to distinguish i
1. Various theories of firma. Coase- The firm is economizing on real consequences. A nexus of contracts
(firms are a cluster of a bunch of contracts).
Coase argues that the size of a firm (as measured by how many contractual
relations are "int
1. Catallactics- is the praxeological theory of exchange ratios and prices. The subject matter
of catallactics is all market phenomena with all their roots, ramifications, and
consequences. Market trends to be dissected by individual tendencie
1. Rationality- Benefits are optimized and or maximized relative to costs. According to
Elster in Explaining Social Behavior, rationality also must be well supported on
evidence, and must result from optimal investment. Rationality is also an extremely
1. Club goods- Non-rivalrous and excludable good. The opposite of a common good, they
have figured a way to charge non-users, but there is no scarcity. Goods that have
plentiful amounts but are exclusive to a specific group of people. Examples
1. Consumer and producer surplus- Consumer surplus is the value gained by consumers
because they are able to make purchase a product for less than they would be willing to
pay (Friedman says its the difference between what you pay for the wine
1. Taxes- a gap between what buyers pay and sellers sell. This gap is given to the
government to maximize state revenue. Neo-classicalists like this because it allows for
allocational waste to become tax collection. Less wasteful.
1. Surplus- An excess of supply over demand. For example, when there are more imports
than exports. Price floors may cause surplus.
2. 1st law of demand- the demand curve always goes down. Diminishing marginal value and
opportunity costs. As t
Economics 11 and 12
Key Terms from earlier in semester
1. Rationality (contextual and ecological)- Benefits are optimized and or maximized
relative to costs. According to Elster in Explaining Social Behavior, rationality also
must be well supported on evi