Chapter 1 - Preliminaries Flashcards
What is microeconomics?
A branch of economics that deals with the behavior of individual economic units—consumers, firms, workers, and investors—as well as the markets that these units comprise.
List the trade-offs of the Following players within an economy:
- Consumers
Consumers have limited incomes, which can be spent on a wide variety of goods and services, or saved for the future.
List the trade-offs of the Following players within an economy:
1.Workers
Workers also face constraints and make trade-offs. First, people must decide whether and when to enter the workforce. Second, workers face trade-offs in their choice of employment. Finally, workers must sometimes decide how many hours per week they wish to work, thereby trading off labor for leisure.
List the trade-offs of the Following players within an economy:
1.Firms
Firms also face limits in terms of the kinds of products that they can produce, and the resources available to produce them.
What are the two ways in which prices are determined in Microeconomics?
- In a centrally planned economy, prices are set by the government.
- In a market economy, prices are determined by the interactions of consumers, workers, and firms. These interactions occur in markets—collections of buyers and sellers that together determine the price of a good.
What is Positive Analysis?
Analysis describing relationships of cause and effect.
What is Normative Analysis
Analysis examining questions of what ought to be.
What is a market?
A market is a collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products.
What is market definition?
Determination of the buyers, sellers, and range of products that should be included in a particular market.
What is arbitrage?
The practice of buying at a low price at one location and selling at a higher price in another.
Define a perfectly competitive market.
A market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.
What is the extent of a market?
Boundaries of a market, both geographical and in terms of range of products produced and sold within it.
State two reasons why market definition is important.
1.A company must understand who its actual and potential competitors are for the various products that it sells or might sell in the future.
2.Market definition can be important for public policy decisions.
Define Real price and Nominal Price.
Real price is the price of a good relative to an aggregate measure of prices; price adjusted for inflation.
Nominal price is absolute price of a good, unadjusted for inflation.
What is Consumer Price Index?
Consumer price index is the measure of the aggregate price level.
