Chapter 1: Basic microeconomics concepts

Question 1

What is Microeconomics?

Answer 1

The study of individual behaviour in the context of scarcity.

We look at the different sources we can can consume

Question 2

What do economists do?

Answer 2

Study human behaviour in order to increase the quality of life of the population. Study how to satisfy our unlimited wants with limited ressources (scarcity).

Question 3

A few challenges in economics?

Answer 3

Rising inequality
Environmental challenges
Political instability 
Finite ressources
inequality on the rise
Unemployment rates high AF
Countries becoming increasingly dependent of each other

Question 4

What is the PPF?

Answer 4

Production Possibility Frontier

Determines what a certain individual can produce with the given ressources.

Question 5

Economy-wide PPF

Answer 5

The production possibilities (combinations) with all individuals involved and with available ressources

Allocates ressources the most efficiently

Question 6

Macroeconomics

Answer 6

Studies economy as a whole in which feedbacks among sectors determine national output, employment and prices

Looking at society as a whole

Question 7

Mixed-economy

Answer 7

Economy in which goods and services are supplied by private sectors and government

Question 8

Is government important to the economy?

Answer 8

Yes because:

• Monetary policies
• Tax and expenditure policies
• Standards and regulations
• Decrease inequalities with taxation and transfer policies
• Offers services with tax

Question 9

Model

Answer 9

Formalization of a theory that facilitates scientific enquiry

Question 10

Theory

Answer 10

Logical view of how things work

Test them to turn them into models

Question 11

How are markets important to our lives?

Answer 11

They allow us to trade, sell our skills or services and improve our standards of living

Market structure designed by different parties

Question 12

Why is specialization important

Answer 12

It allows for a maximum increase of production (output), and in the end consumptions (not a a zero-sum game). With trade, we can buy what others have specialized in (using absolute advantage)

Question 13

Absolute advantage

Answer 13

It is when specialization is applied effectively, which allows us to produce most of that in which we specialize

Question 14

Zero-sum game

Answer 14

One participant wins while the others loses (opposite of specialization and trade)

Question 15

Productivity of labour (output per worker)

Answer 15

Depends on:
Skills, knowledge and experience of workers
Capital stock
Current technology (in labour force and capital stock)

Question 16

Capital stock

Answer 16

Buildings, machinery, equipment and software that labour force has to work with

Question 17

Capacity output (full employment output)

Answer 17

All workers that wanna work actually work at their wages, normal hours

Question 18

Whats a recession

Answer 18

Output falls below current capacity outputt

Shifts PPF curve inwards

Question 19

What is a boom

Answer 19

Capacity Output increases above current capacity output

Shifts PPF curve outwards

Question 20

Scarcity

Answer 20

Being in shortage

Question 21

Opportunity cost

Answer 21

What you give up doing something else

Question 22

Who are the important characters in micro economics

Answer 22

Government
Firms and companies: want to maximize profit
Consumers: want to consume at cheapest price