Question

Define in your own words what economists mean by: 1. Opportunity cost 2. Normal good 3. Consumer surplus 4. Ceteris Paribus 5. Incidence of a tax

Answer 1

1.Opportunity cost in simple terms is the the cost for losing other options for opting next best option .

for example if a person decides to not not go for the party and study for the exam as his best alternative then there a option lost is the party and gain is the study.

2.Normal goods and inferior goods are defined in terms of income elasticity of demand .

Normal goods are those goods which consumption rises as the income of a person rises like good quality foods ,refrigerator etc .

3.Consumer surplus in simple terms is the difference of what the consumer pay actually for a good or the service and what he is willing to pay .

It is from the consumer perspective .

4 .ceteris paribus is Latin phrase which simple terms meaning that -if other things are held constant .

For example ,in law of demand if all of the factors are held constant then price is inversely related to the quantity demanded.

5.Tax incidence is also called tax burden.

it is the division of tax burden on the buyers and the sellers and talked in term of price elasticity of supply and demand in the market..

For example if demand is more elastic than supply then producer has to bear more cost as compared to the consumers and Vice a versa