Substitution effect Income effect Price elasticity of demand Midpoint method Perfectly inelastic Perfectly elastic Elastic Inelastic Unit-elastic Total revenue Cross-price elasticity of demand Income elasticity of demand Income-elastic Income-inelastic Price elasticity of supply Perfectly inelastic supply Perfectly elastic supply Willingness to pay Individual consumer surplus Total consumer surplus Consumer surplus Cost Individual producer surplus Total producer surplus Producer surplus Total surplus Progressive tax Regressive tax Proportional tax Excise tax Tax incidence Deadweight loss Administrative costs Lump-sum tax Utility Util Marginal utility Marginal utility curve Principle of diminishing marginal utility Budget constraint Consumption possibilities Budget line Optimal consumption bundle Marginal utility per dollar Optimal consumption rule | the net gain to an individual seller from selling a good; is equal to the difference between the price received and the seller’s cost. the sum of the individual consumer surpluses of all the buyers of a good in a market. when the income elasticity of demand for a good is greater than 1. the idea that each successive unit of a good or service consumed adds less to total utility than does the previous unit. the consumption bundle that maximizes the consumer’s total utility given his or her budget constraint. a tax of a fixed amount paid by all taxpayers, independent of the taxpayer’s income. the additional utility from spending one more dollar on a good or service. says that in order to maximize utility, a consumer must equate the marginal utility per dollar spent on each good and service in the consumption bundle. the distribution of the tax burden. when the price elasticity of demand is less than 1. the change in the quantity of a good demanded that results from a change in the consumer’s purchasing power when the price of the good changes. a unit of utility. the percent change in the quantity of a good demanded when a consumer’s income changes divided by the percent change in the consumer’s income. a technique for calculating the percent change by dividing the change in a variable by the average, or midpoint, of the initial and final values of that variable. the value of foregone mutually beneficial transactions. shows how marginal utility depends on the quantity of a good or service consumed. the net gain received from purchasing a good or service. the ratio of the percent change in the quantity demanded to the percent change in the price as we move along the demand curve (dropping the minus sign). when the income elasticity of demand for a good is positive but less than 1. refers to both individual and total producer surplus. the total net gain to consumers and producers from trading in a market; the sum of producer and consumer surplus. a measure of the responsiveness of the quantity of a good supplied to the price of that good; the ratio of the percent change in the quantity supplied to the percent change in the price as we move along the supply curve. a tax on sales of a particular good or service. the maximum price at which a consumer would buy a good. when the price elasticity of demand is greater than 1. a tax that rises more than in proportion to income. a tax that rises in proportion to income. measures the effect of the change in one good’s price on the quantity demanded of another good; is equal to the percent change in the quantity demanded of one good divided by the percent change in the other good’s price. when the price elasticity of supply is zero, so that changes in the price of the good have no effect on the quantity supplied; a perfectly inelastic supply curve is a vertical line. limits the cost of a consumer’s consumption bundle to no more than the consumer’s income. (of a tax) the resources used by the government to collect the tax, and by taxpayers to pay (or to evade) it, over and above the amount collected. when the price elasticity of demand is exactly 1. shows the consumption bundles available to a consumer who spends all of his or her income. the net gain to an individual buyer from the purchase of a good; is equal to the difference between the buyer’s willingness to pay and the price paid. the sum of the individual producer surpluses of all the sellers of a good in a market. when the quantity demanded does not respond at all to changes in the price; the demand curve is a vertical line. the change in the quantity of a good demanded as the consumer substitutes the good that has become relatively cheaper for the good that has become relatively more expensive. the change in total utility generated by consuming one additional unit of a good or service. the total value of sales of a good or service; equal to the price multiplied by the quantity sold. when any price increase will cause the quantity demanded to drop to zero; the demand curve is a horizontal line. when the quantity supplied is zero below some price and infinite above that price; a perfectly elastic supply curve is a horizontal line. the set of all consumption bundles that are affordable, given a consumer’s income and prevailing prices. a measure of personal satisfaction. the lowest price at which a seller is willing to sell a good. a tax that rises less than in proportion to income. |