Endogenous - Arising from within the system, e.g.

, Marginal rate of substitution - The rate at which a

budgets that emerge from the sale of consumer is willing to trade one good for

endowments at market prices. another; also, the negative slope of an indifference

Endowment - Assets that can be sold to generate
income for consumption.
Tax Credits - An amount that can be deducted from a
taxpayer’s tax obligation prior to tax
curve.
Indifference maps - A map of indifference curves that
represents a person’s tastes.
Utils - Hypothetical measurement unit for utility.

payment being made.
Price Subsidy - A subsidy that lowers the price for
consumers.
Budget Sets - The set of possible alternatives that are
affordable.
Intertemporal budget constraints - A budget illustrating
consumption trade-offs across time.
Monotonic tastes - Tastes under which more is better
than (or at least as good as) less.
Local non-satiation - A property of tastes that assumes
there always exists an alternate
consumption bundle close to the one currently
consumed such that the consumer would prefer
that alternate bundle.

Strategy - In game theory, a player’s complete plan of

action prior to the beginning of the game.
MICROECONOMICS
Compound Interest - The interest in future periods on
Tastes - A ranking of consumption bundles, also called
interest earned this period.
preferences.
Complete tastes (or preferences) - Tastes that enable
Interest rates - The price of using financial capital.
individuals to rank all pairs of alternatives
Substitution effects- In consumer theory, the portion of
in terms of relative desirability.
a response (to a price change) that is
Transitive - Tastes such that bundle A being preferred
due solely to the change in opportunity costs; in
to B and B being preferred to C implies
producer theory, the change in input bundles
that A is preferred to C.
that a cost-minimizing producer undertakes in response
Convex Tastes - Tastes under which the convex to input price changes (while keeping
combination of equally preferred bundles is
output constant).
more desirable (or at least no worse) than the
Opportunity Cost- What someone gives up by
“extreme” bundles; the set of bundles that are
undertaking an activity; also called economic
preferred to a bundle is a convex set when tastes are
cost or just cost.
convex.
Circumstances - The constraints faced by someone who
Diminishing marginal rates of substitution - Property of
has to make a choice.
convex tastes that results in
Distortionary - Usually refers to a policy that alters
individuals being increasingly less willing to substitute
prices and thus the opportunity costs faced
good x for good y the more y they
by individuals.
already have.
Labor Supply - The supply of labor by workers (who
Indifference Curves- A set of consumption bundles that
trade off consumption and leisure).
a consumer is indifferent between.
Marginal Willingness - The willingness to pay for one
more (or for the last) unit of a

consumption good.

Compensated Demand - A consumer’s demand holding

utility constant, i.e., a consumer’s

demand under the assumption that, as prices change,

the consumer will always receive just

enough income to attain the same indifference curve.

Consumer Surplus - The difference between what a

consumer would have been willing to pay

and what he or she had to pay for the quantity of a

good that he or she purchases.

Choice Set - The set of feasible alternatives.

Total Expenditures - The sum of all expenses, including

sunk costs.

Exogenous - Given from outside the system, e.g.,

budgets that are fixed at some dollar value

independent of other economic variables.

Budget Constraint - The set of possible alternatives that

are affordable when the entire budget

is used, i.e., the boundary of the budget set.

Composite Good- An artificial or hypothetical good that

takes the place of “all other

consumption”; usually denominated in “dollars of other

consumption,” with price therefore set to

1 by definition.

Tax Deductions - An amount that can be deducted from

a person’s taxable income that is used

to calculate the person’s tax obligation.