Ec10
Perfectly competitive market
(1) sellers all sell an identical good or service, and (2) any individual buyer or seller isn't powerful enough on his or her own to effect the whole market price
price-takers
A buyer or seller who accepts the market price
Normal goods
A good is x if the quantity demanded is directly related to income
Luxury Good
A good with an income elasticity above 1
Demand schedule
A table that reports the quantity demanded at different prices, holding all else equal
Principle 4 of behavioral economics
Although we mostly care about our own material payoffs, we also care about the actions, intentions, and payoffs of others, even people outside our family.
Market price
If all sellers and all buyers face the same price, it is referred to as this
Principle 6 of behavioral economics
In theory, limiting people's choices could partially protect them from their behavioral biases, but in practice, heavy-handed paternalism has a mixed track record and is often unpopular.
Principle 2 of behavioral economics
People care (in part) about how their circumstances compare to reference points.
Principle 3 of behavioral economics
People have self-control problems.
Principle 1 of behavioral economics
People try to choose the best feasible option, but they sometimes don't succeed.
Reservation value
Price at which a trading parter is indifferent between making the trade and not doing so
The supply curve shifts when these variables change:
Price of inputs used to produce the good, technology used to produce the good, number and scale of sellers, sellers's beliefs about the future
Principle 5 of behavioral economics
Sometimes market exchange makes psychological factors cease to matter, but many psychological factors matter even in markets.
The demand curve shifts when these variables change:
Tastes and preferences, income and wealth, availability and price of related goods, number and scale of buyers, buyers's beliefs about the future.
quantity demanded
The amount of a good that buyers are willing to purchase at a given price
Holding all else equal
ceteris paribus
Perfectly elastic
demand is highly responsive to price changes—the smallest increase in price causes consumers to stop consuming the good altogether.
input
good or service used to produce another good or service
unit elastic demand
goods with a price elasticity of demand equal to 1
Elastic demand
goods with a price elasticity of demand greater than 1
inelastic demand
goods with a price elasticity of demand less than 1. Percentage change in quantity demanded is less than the percentage change in price.
Market
group of economic agents trading a good or service plus the rules and arrangements for trading
Income elasticity of demand
measures the percentage change in quantity demanded due to a percentage change in income
Cross-price elasticity of demand
measures the percentage change in quantity demanded of a good due to a percentage change in another good's price.
Price elasticity of demand
measures the percentage change in quantity demanded of a good resulting from a percentage change in the good's price.
Elasticity
measures the sensitivity of one economic variable to a change in anothe
Demand curve's slope
negative
An outcome is Pareto efficient if
no individual can be made better off without making someone else worse off
A supply curve's slope
positive
perfectly inelastic
quantity demanded is completely unaffected by price
budget set
set of all possible bundles of goods and services that a consumer can purchase with his income
Economists toward the paternalistic end of the spectrum would probably say thatsome mistakes simply result from the fact that
some mistakes simply result from the fact that individuals are not used to making decisions of a certain type. The pure consumer sovereignty view would be that thegovernment's business is not to influence people into making choices they can make on their own.
Consumer surplus
the difference between the willingness to pay and the price paid for the good
Behavioral economics
uses variants of traditional economic assumptions (often with a psychological motivation) to explain and predict behavior, and to provide policy prescriptions.
Inferior good
when income rises, consumers buy less of this
