RULE Dual Degree Economics Entrance flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Marginal rate of substitution

The rate at which a consumer is willing to trade one good for another while keeping utility constant; equals the ratio of marginal utilities MUx/MUy and, at an optimum, the price ratio Px/Py.

Slutsky equation

Decomposes the effect of a price change on demand into a substitution effect (always negative for a price increase) plus an income effect whose sign depends on whether the good is normal or inferior.

Deadweight loss

The loss of total surplus relative to the efficient outcome, arising from taxes, monopoly pricing, or other distortions; geometrically the area between the demand and supply curves over the restricted quantity range.

Nash equilibrium

A strategy profile in which each player's strategy is a best response to the others, so no player can gain by unilaterally changing strategy; may be pure or mixed.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price; demand is elastic when the absolute value exceeds 1 and inelastic when below 1.

GDP expenditure identity

Gross domestic product equals consumption plus investment plus government purchases plus net exports (Y = C + I + G + NX); an accounting identity for an open economy.

Solow steady state

The capital stock per worker at which saving per worker equals required investment (n + g + δ)k; in the long run, output per worker grows at the rate of technological progress g.

Quantity theory of money

MV = PY links money supply, velocity, the price level, and real output; with constant velocity and potential output, sustained money growth translates one-for-one into inflation in the long run.

Phillips curve

A negative short-run relationship between inflation and unemployment; the expectations-augmented version is π = π^e − β(u − u_n) + v, and the long-run curve is vertical at the natural rate.

Money multiplier

The ratio of the money supply to the monetary base, m = (1 + c)/(r + e + c), where c is the currency-deposit ratio, r the reserve requirement, and e the excess reserve ratio.

IS-LM equilibrium

The interest rate and output pair at which goods-market equilibrium (IS: Y = C + I + G) and money-market equilibrium (LM: M/P = L(Y,r)) hold simultaneously.

Purchasing power parity

The proposition that exchange rates adjust so that identical baskets cost the same across countries; relative PPP states that the exchange-rate change equals the inflation differential.

Lagrangian method

A technique for constrained optimization that forms L = objective + λ(constraint) and sets partial derivatives with respect to each choice variable and the multiplier to zero.

Chain rule

For a composite function f(g(x)), the derivative is f'(g(x)) · g'(x); it is the basis for log-differentiation and for computing marginal effects in nested economic models.

Hessian matrix

The matrix of second partial derivatives of a multivariate function; a negative definite Hessian at a critical point is a sufficient second-order condition for a local maximum.

Consumer surplus

The difference between what a consumer is willing to pay and what is actually paid; the area below the demand curve and above the market price.

Present value of perpetuity

For a constant payment C received forever starting next period, PV = C/r; for a payment growing at rate g with r > g, PV = C/(r − g).

Log-differentiation

Taking the natural log of an equation and differentiating with respect to time to obtain growth rates; for Y = A K^α L^(1−α), g_Y = g_A + α g_K + (1−α) g_L.

OLS slope estimator

The ordinary least squares slope equals the sample covariance of X and Y divided by the sample variance of X; it minimizes the sum of squared vertical deviations.

Gauss-Markov theorem

Under the classical linear regression assumptions, ordinary least squares is the best linear unbiased estimator (BLUE): unbiased and minimum variance among linear unbiased estimators.

R-squared

The fraction of total variation in the dependent variable explained by the regression, R² = 1 − SSR/SST; it ranges from 0 to 1 and never decreases when a regressor is added.

Omitted variable bias

Bias in an estimated coefficient caused by excluding a relevant variable that is correlated with both the included regressor and the outcome; the sign is the product of the two correlations.

Heteroskedasticity

A condition in which the variance of the regression error differs across observations; OLS stays unbiased but conventional standard errors are invalid, so robust standard errors are used.

p-value

The probability, assuming the null hypothesis is true, of obtaining a test statistic at least as extreme as the observed one; reject the null when it falls below the chosen significance level.

t-statistic

The estimated coefficient divided by its standard error; it measures how many standard errors the estimate lies from the hypothesized value, usually zero.

Necessary versus sufficient condition

A is necessary for B if B cannot occur without A (B → A); A is sufficient for B if A guarantees B (A → B); 'A if and only if B' requires both directions.

Contrapositive

The statement ¬B → ¬A is logically equivalent to A → B; unlike the converse and inverse, the contrapositive always preserves truth value.

Bayes' theorem

P(A|B) = P(B|A)P(A)/P(B); it updates a prior probability P(A) with the likelihood of the evidence to produce a posterior probability.

Post hoc fallacy

Inferring causation from temporal order alone - because B followed A, A is claimed to have caused B; it ignores confounders and coincidence.

Selection bias

Distortion arising when the observed sample is not representative of the population because inclusion is related to the outcome or to the explanatory variable.

Hedging in academic writing

The use of cautious verbs and qualifiers such as 'suggests' or 'is consistent with' to signal that a claim is supported but not definitively proven by the evidence.

Author-date citation

An in-text referencing style that places the author's surname and publication year in parentheses, with full details in the reference list; direct quotations also require page numbers.