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set
also lies within the set.
Demand Curve – graph that relates quantity demanded (on horizontal axis) to price (on the vertical axis)
Complements – goods that tends to be consumed together by consumers or inputs that tend to be used
together in production
Wages – for firms, the price of labor; for workers, the opportunity cost of leisure
Equilibrium – economic environment which everyone doing the best they can given to the
circumstances they face
Game theory – subfield of economics that develop tools for investigating strategic decision making
Subsidy – government financial assistance that take form of cash payment and/or price subsidy
Price Gouging – popular term used to denote moral outrage at charging of high prices during periods of
supply disruption.
Econometrics – subfield in economics that investigates how to employ statistical techniques to test
economic model
Positive Economics – branch of economics whose purpose is to predict behavior and equilibrium
consequences
Normative Economics – subfield of eco that intersects with philosophy in that it asks “what is good”
Efficient – situation that cannot be changed in a way that would make some people better off w/o
making anyone worse off – same as pareto efficient
Industrial Organization – subfield in economics that investigates competition in diff types of industry
structure
Capital – variety of non-labor inputs into production, including financial capital and physical capital
(plant and equipment)
Opportunity Cost – what someone gives up by undertaking an activity; called economic cost/cost
Substitution Effects – in consumer theory, portion of response to a price change that is due solely to
change in opportunity cost.
Distortionary – refers to a policy that alters prices and thus the opportunity costs faced by individuals.
Labor Supply – supply of labor by workers who trade off consumption and leisure
Consumer Surplus – difference bet. what a consumer would have been willing to pay and what he or she
had to pay for the quantity of good that he or she purchase
Marginal Willingness to pay – willingness to pay for one more or for the last unit of consumption good.
Compensated Demand – holding utility constant, consumers demand under assumption that as the price
change, the consumer will receive just enough income.
Exogenous – given from the outside system, budgets that are fixed at some dollar value independent of
other economic variables
Budget constraints – set of possible alternatives that are affordable when the entire budget is used
Composite good – artificial or hypothetical good that takes the place of all other consumption
Tax Deductions – amount that can be deducted from a persons taxable income that used to calculate
the persons tax obligation
Tax credits – amount that can be deducted from the taxpayer’s obligation prior to tax payment being
made