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Budget Set --Different bundles of goods and services that are attainable to the consumer at given market prices and the consumer's fixed level of income. Competition --The process of consumers bidding prices upwards or producers cutting prices in order to allow those agents to be involved in a market trade. Complementary Goods A pair of goods where the quantity demanded of one increases when the price of a related good decreases.

Constant Returns to Scale CRS --A long run production concept where a doubling of all factor inputs exactly doubles the amount of output. Consumer household --An economic agent that desires to purchase goods and services with the goal of maximizing the satisfaction from consumption of those goods and services. Consumer's Surplus --The difference between what a consumer is willing to pay for each unit of a commodity consumed and the price actually paid.

Cross-Price Elasticity of Demand --A measure of sensitivity in the quantity demanded of one goods in reaction to changes in the price of a related good. Decreasing Returns to Scale DRS --A long run production concept where a doubling of all factor inputs results in less than double the amount of output. Demand --A relationship between market price and quantities of goods and services purchased in a given period of time.

Represents the behavior of buyers in the market place. Diminishing Marginal Productivity DMP --A short run production concept where increases in the variable factor of production lead to less and less additional output.

Diminishing Marginal Utility DMU --An economic concept that refers to the notion that additional units consumed of a particular commodity provide less and less additional satisfaction relative to previous units consumed.

Dominant Strategy --A game theoretic outcome where the choice of one player is the same independent of choices made by other players in the game. Economic Agent --A decision maker involved in any type of economic activity. Economics -- The study of how a given society allocates scarce resources to meet the unlimited wants and need of its members.

Edgeworth Box --An analytical tool used to study the behavior of two economic agents based on preferences for goods and services when production of those goods is held constant.

Efficiency --A situation in the allocation of resources where the benefits of consuming one more unit exactly equal the social and private costs or producing that good. Equilibrium --A condition where there is no tendency for an economic variable to change.

Expenditure --The amount spent by a consumer on a bundle of goods or services the product of market price and quantity demanded. Factors of Production --An exhaustive list of inputs required for any type of production.

Factor Prices --The payments made to the factors of production rents, wages, interest, and profits. Final Goods and Services --Goods and services that are purchased for direct consumption. Fixed Costs of Production --Those costs of production that are independent of production levels in the short run.

Flow Variable -- A variable that is measured per unit of time.. Game Theory --A modeling technique that accounts for strategic behavior of economic agents reacting to the actions of others. Income Effect --A reaction of consumer's demand for goods or services due to changes in purchasing power holding relative prices constant see Substitution Effect. Income Elasticity of Demand --A measure of sensitivity of quantity demanded to changes in consumer income. Income-Neutral Good --A good where quantity demanded is unchanged when consumer income changes.

Increasing Returns to Scale IRS --A long run production concept where a doubling of all factor inputs more than doubles the amount of output. A variable is exogenous to a model if it is not determined by other parameters and variables in the model, but it is set externally and any changes to it come from external forces, in contrast to endogenous.

It is also the average of the data. The expected value is a parameter indicating the "center of gravity" of a probability distribution. Exponential models are characterized by constant percentage change percentage differences in output values when input values are evenly spaced. The process of predicting an output value using an input value that is outside a given interval of input data. Extrapolation should always be viewed with caution. A point at which a maximum or minimum output occurs.

At an extreme point on a graph, the slope of the line tangent to the curve at that point is zero or the slope does not exist at that point but the function output exists at that point.

Extreme points occur at an input value, but the extreme value is an output value. For multivariable functions, relative extreme points cannot be visually identified on the edges of tables or contour graphs. The changes in successive output values.

It is helpful to calculate first differences for a data set only if all input data values are evenly spaced. Also called start-up costs, these costs do not vary with the number of items produced or the amount of service performed. An algebraic method of finding the derivative of a function using the definition of the derivative.

A function is a rule that assigns exactly one output to each input. Functions are represented verbally by word descriptions, numerically in tables, visually with graphs, or algebraically with equations.

If x is the input symbol and f is the rule, then f x symbolizes the output. The value of an investment at some time in the future. Future value for discrete situations is calculated using the appropriate compound interest formula. The future value of a continuous income stream is the total accumulated value of the income stream and its earned interest.

The Greek letter for the factor sensitivities measuring a portfolio's second order quadratic sensitivity to the value of an underlie. A generalized linear model is a model where y is a vector of dependent variable, and x is a column vector of independent variables.

The model is often called a link function. One of the ways to represent a function or a real-life situation by plotting output and input points on coordinate axes.

Discrete graphs are scatter plots. Continuous graphs can be drawn without lifting the writing instrument from the page. The taking of offsetting risks. The Hessian matrix is the matrix of second derivatives of a multivariate function. That is, the gradient of the gradient of a function. Properties of the Hessian matrix at an optimum of differentiable function are relevant in many places in economics and finance. A graph that is composed of rectangles and constructed so that the area of each rectangle is the percentage of outputs in the corresponding input interval.

These histograms are also called probability histograms because the area of each rectangle is the probability that the value of the random variable under discussion is in the interval that forms the base of the rectangle. A parameter in a model is identified, if and only if, complete knowledge of the joint distribution of the observed variables gives enough information to calculate the parameter exactly. If the model has been written in such a way that its parameters can be consistently estimated from the observables, then the parameters are identified.

A model is identified if there is no observationally equivalent model. That is, potentially observable random variables in the model have different distributions for different values of the parameter.

IC is a locus of points representing different baskets of commodities X and Y that may give consumers the same level of utility or satisfaction so that he is indifferent among them. A flow of money into an interest-bearing account over a period of time. When the money flows continuously into the account, the flow is called a continuous income stream. A discrete income stream is a one into which money flows at specific intervals of time quarterly, monthly, daily, and so on.

A term applied to the output of a function that infinitely increases in height. Increasing without bound may describe either the end behavior of a function or the limiting value of a function as the input approaches a certain value.

An ongoing rise in the average level of absolute prices. A point where the concavity of a graph changes. Cubic and logistic functions have one point. Sine and cosine functions have two inflection points in each cycle and an infinite number of inflection points over all real number inputs.

In real-life applications, the inflection point is interpreted as the point of most rapid change or least rapid change in an area near the inflection point. A known point on the graph of a particular solution for a differential equation. Instantaneous rate of change: The instantaneous rate of change at a point on a curve is the slope of the curve at that point and the slope of the line tangent to the curve at that point. Instantaneous rates of change have labels of output units per input unit.

The process of evaluating a definite integral to determine the accumulation of change or the process of recovering a quantity function from a rate-of-change function. Interpretation of a result: A simple non-technical sentence explaining the real-life meaning of a result. The input value where the graph crosses or touches the horizontal axis or the output value where the graph touches or crosses the vertical axis.

The process of predicting an output value using an input value that is within a given interval of input data. If a rule obtained by reversing the input and output of a function is also a function, then it is called an inverse function.

An Ito process is a stochastic process: A generalized Wiener process is a continuous-time random walk with a drift and random jumps at every point in time. A jackknife estimator creates a series of estimates, from a single data set by generating that statistic repeatedly on the data set, leaving one data value out each time.

This produces a mean estimate of the parameter and a standard deviation of the estimates of the parameter. The constant k is the constant of proportionality. A parameter describing the peakedness and tails of a probability distribution. All else equal, if the price of a good goes up, quantity demanded goes down and vice versa. A procedure to determine the line that best fits a set of data using the criterion that the sum of the squares of the deviations of all the data points from the fitted line, i.

The linear function that best fits a set of data, where best fit is defined according to the least squares method. Economic Incidence of a Tax Legal incidence refers to the division of a tax burden according to who is required by law to pay the tax, while economic incidence refers to the division of a tax burden according to who actually pays the tax after all price adjustments are taken into account.

A change in the legal incidence of a tax will have no effect on the economic incidence. If the legal incidence of a per-unit tax is entirely on suppliers, the supply curve will shift up by the amount of the tax.

On the other hand, if the legal incidence is entirely on demanders, the demand curve will shift down by the amount of the tax. In both situations, the equilibrium quantity will fall, suppliers will receive a lower post-tax price, and demanders will pay a higher post-tax price.

Leverage ratios measure the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time, for example: A number to which the output of a function becomes closer and closer as the input becomes closer and closer to a stated value.

A function that repeatedly and at even intervals adds the same value to the output. In the linear function, a is the constant rate of change of the output, i. When input values in a set of data are evenly spaced and the first differences of the output values are constant, the data should be modeled by a linear function. Linear system of equations: Two or more equations in which all the variables occur to the first power and there are no terms in which two different variables are multiplied or divided.

Liquidity ratios measure a firm's ability to meet its current obligations, for example: The principle that if we graph a smooth, continuous function over a small enough interval around a point, then the graph looks like the line tangent to the curve at that point. That is, the tangent line and the curve are basically indistinguishable over the interval. We refer to L as the limiting value or carrying capacity or saturation level of the function.

A type of approximation of change used in economics. The rates of change of cost, revenue, and profit with respect to the number of units produced or sold are called marginal cost, marginal revenue, and marginal profit. These rates are often used to approximate the actual change in cost, revenue, or profit when the number of units produced or sold is increased by one.

The marginal utility of a good say X is defined to be the amount of additional utility derived from the consumption of an additional unit of X while keeping the quantity of the other good say Y as constant.

The actual price that a consumer pays for one unit of goods or services. The process of translating a real-world problem into a useable mathematical equation. A rectangular arrangement of numbers in rows and columns. Matrices are useful in solving systems of linear equations. One of the measures of the center of a probability distribution, the mean also called the expected value or average is the input value of the "balance point" of the region between the density function and the horizontal axis.

Microeconomics is the study of the economic choices made by individual economic units such as consumers, households and firms etc. A mathematical model is an equation, along with descriptions and units of the variables, that describes a real-life situation.

There are four important elements to every model: If a certain firm is the only one that can produce a certain goodsor service, it has a monopoly in the market for that goods or service. It is an estimate of the fees that you will pay to close your loan. If your equity in your property qualifies, you can refinance with a loan amount greater than your current mortgage - and keep the difference!

Use it for home improvement, debt consolidation, or whatever you desire. Your income, debt, and mortgage payments are the primary factors that affect whether you qualify for a loan.

If you do qualify for a loan, you can apply, and ditech. To determine your qualification, the first thing ditech. This provides your housing-to-income ratio. If the resulting percentage falls within a certain range, the next step is to divide your total monthly debt by your gross monthly income.

This provides your debt-to-income ratio. Again, if the ratio falls within prescribed limits, you are qualified for the loan. The limits within which your housing and debt ratios must fall are determined primarily by the size of the loan, the value of the property, and the ratio between the two known as the loan-to-value ratio, or LTV. This loan-to-value ratio is one of the most important factors in determining a home loan. The appraisal determines the value of the property in question, which becomes a prime factor in determining the loan-to-value - or LTV - ratio the amount of your loan divided by the value of your property.

Your LTV is important because it determines your equity in the property. With the exception of leveraged equity and some second mortgages, ditech. An appraiser is an authorized professional who estimates the value of the property and sends the information to ditech. Your income, debt, and mortgage payments make up your income-to-debt ratio. These are the primary factors that affect whether or not you qualify for a loan.

Owner's estimate of value: You can estimate the value by reviewing neighborhood comparable properties comps. Fixed Residential Investment -- Additions to the existing stock of housing used to provide housing services. Flow Variable -- A variable that is measured per unit of time.. Frictional Unemployment -- Unemployment that exists as a natural consequence of market activity where individuals are in-between jobs. The market value of all final goods and services produced in a given time period.

Gross Investment -- Investment that includes additions to the capital stock as well a the replacement of depreciated capital. Income Producing Asset -- An asset that is used to generate revenue from the production and sale of goods and services. Indirect Business Taxes -- Taxes that tend to be built into the price of a particular good i. Income Taxes -- Taxes that are based on and vary with personal or corporate income.

Indirect Finance -- The transfer of loanable funds deposits through the use of financial intermediaries commercial banks. Induced Expenditure -- Changes in spending due to changes in national income. See the Marginal Propensity to Spend. Inflation -- An increase in the price level over some defined time period. Interest Sensitivity of Investment -- A measure of responsiveness of investment expenditure to changes to the real interest rate.

Interest Sensitivity of Money Demand -- A measure of responsiveness of the demand for cash balances to changes in the nominal interest rate. Intermediate Goods and Services -- Goods or services used to produce other goods i.

Investment -- Changes to the existing capital stock or business inventories. Labor Force Participation Rate -- The ratio of those in the labor force the employed and unemployed and those that are available for work.

Laspeyres Index -- A weighted average of prices based on the use of base-period consumption patterns. Liquidity -- A measure of the ease by which a financial asset can be converted into a form readily accepted as payment for goods and services.

Liquidity Premium -- An adjustment to a real interest rate to compensate for the direct relationship between uncertainty and the duration of a debt contract. M 1 -- A narrow money supply measure that includes currency in circulation and the value of demand deposits. M 2 -- A broad money supply measure that includes currency, demand deposits, and the value of time deposits. Marginal Propensity to Consume --The fraction of each additional dollar of income devoted to consumption expenditure.

Marginal Propensity to Spend -- The fraction of each additional dollar of income devoted to any type of spending i. Market -- A place or institution where buyers and sellers come together and exchange factor inputs or final goods and services. A market is one of several types of economic rationing systems. Money Market Instrument -- A short term less than 10 years debt instrument. Money Multiplier -- The relationship between changes in the monetary base and the money supply.

Monetary Base -- Also known as High-powered Money. National Income -- The sum of all types of income wages, net interest, profits, and net rental income earned in a given time period by any type of economic agent individuals or corporation. Natural Rate of Unemployment -- That rate of unemployment where there is neither upward nor downward pressure on prices. Net Investment -- Investment exclusive of replacement of depreciated capital. Nominal Interest Rate -- The interest rate published as part of a debt contract.

Non-Durable Goods --Goods that tend to be immediately consumed or deliver consumption services over a short period of time.

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