Unit Manual Terms 1

Question 1

Backstop Price

Answer 1

Price where demand for a non-renewable resource drops to zero and consumers turn
to “backstop” (alternative) resource

Question 2

Consumer Surplus

Answer 2

The area under the demand curve and above the price line

Question 3

Discount Factor

Answer 3

Uses the discount rate to give the current value of $1 received in the future

Question 4

Discount Rate

Answer 4

The rate of time discount

Question 5

Expected Monetary Values

Answer 5

Sum of monetary outcomes in a lottery weighted by the probabilities

Question 6

Expected Utility

Answer 6

Sum of the utility of monetary outcomes weighted by the probabilities

Question 7

Expected Utility Rule

Answer 7

u(w)=√w
W= Wealth
u = Probability

Question 8

Externality

Answer 8

Cost that an action by a person could have on others

Question 9

Future Value

Answer 9

Measures the nominal future sum of money in the future with a certain IR

Question 10

Future Value Rule

Answer 10

Vt =Vo(1+i)
Vt = Future Value
Vo = Present Value
i = Interest Rate