Chapter 1 Flashcards
What does Microeconomics deal with?
It deals with the behaviour of individual economic units; economics on a small scale
What does Macroeconomics deal with?
It deals with aggregate economic quantities; economics on a large scale
What are some of the individual economic units that microeconomics deals with?
Consumers, firms, workers, and investors
What are some of the aggregate economic variables that macroeconomics deals with?
Level and growth rate of national output
Interest rates
Unemployment
Inflation
What are trade-offs?
It is essentially of deciding between two options; this or that?
What are some trade-offs for consumers?
Trade-offs in the purchase of more of some goods for less of others
Trade-off between current consumption and future consumption
What are some trade-offs for workers?
Trade-offs in their choice of employment
Trade-off between labor and leisure
What are some trade-offs for firms?
Trade-offs in what to produce
Trade-offs in the resources to use in production
What are trade-offs based on?
They are based on the prices faced by consumers, workers, or firms
Who sets prices in a centrally planned economy?
The government
Who sets the prices in a market economy?
They are determined by the interactions of consumers, workers, and firms in markets; it is determined by the relationship between consumer and producer
What are theories?
Theories are ideas that are meant to explain a given phenomena based on a set of assumptions
What is a model?
It is a mathematical representation, based on economic theory, of a firm, a market, or some other entity
What allows us to measure the accuracy of our predictions?
Statistics and econometrics
What should we keep in mind when evaluating a theory?
That it is invariably imperfect and has limited success in making predictions
What is positive analyses?
It is a form of analysis that describes the relationships of cause and effect
What is normative analysis?
It is the analysis of examining questions of what ought to be
Why can normative analysis be useful for the creation of economic policies?
It can be useful because normative analysis is often supplemented by value judgements. Therefore, it can clarify the trade-offs and thereby help to illuminate the issues and sharpen the debate
What is a market?
It is a collection of buyers and sellers that, through their actual or potential interactions, determines the price of a product or set of products; it is an entity that encapsulates the relationship between producer and consumer
What is the definition of a market?
The determination of the buyers, sellers, and range of products that should be included in a particular market.
What is arbitrage?
It is the practice of buying at a low price at one location and selling at a higher price in another
What makes up a perfectly competitive market?
It is a market with many buyers and sellers who do not have a significant impact on the price.
What is the market price?
It is the prevailing price in a competitive market
How can the market price be affected in markets that are not perfectly competitve?
Different firms might charge different prices for the same product
How do the market prices of goods change?
Through fluctuation over time. The price of many goods can fluctuate rapidly which is particularly true for goods sold in a competitive market
What is the extent of a market?
They are the boundaries of a market, both geographically and in terms of range of products produced and sold within it.
Why is market definition important?
It is important because a company must understand who its actual and potential competitors are for the various products that it sells or might sell in the future.
Market definition can be important for public policy decisions
What is the nominal price?
It is the absolute price of a good, unadjusted for inflation; it is the observed price of a good on the market
What is the real price?
The real price is the price of a good relative to an aggregate measure of prices; price adjusted for inflation
The real price is subject to change depending on the year in which we are observing the price as the inflation rate is different from year to year
What is the Consumer Price Index?
It is the measure of the aggregate price level
CPI measures a basket of products and measures the percentage increase or decrease in the price of a given good
What is the Producer Price Index?
It is the measure of the aggregate price level for intermediate products and wholesale goods.
