Chapter 1 - Preliminaries Flashcards
What is microeconomics about?
The allocation of scarce resources efficiently.
What is a market?
The collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product and the quantity sales of products.
What do firms aim at?
Maximizing profits.
What do consumers/workers aim at?
Maximizing utility (satisfaction).
What is a perfectly competitive market?
A market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.
Individual firm is price taker, and individual consumer is price taker. Also, individual firm is wage taker, and individual worker is wage taker.
True or False:
The market of goods decide the price of goods; and the market of labor decide the price of labor (wage).
True
What is positive analysis?
Analysis describing relationships of cause and effect. Positive questions deal with explanation and prediction.
What is normative analysis?
Analysis examining questions of what ought to be. Normative analysis is often supplemented by value judgement.
What is arbitrage?
Practice of buying at a low price at one location and selling at a higher price in another.
What is nominal price?
Absolute price of a good; unadjusted for inflation.
What is real price?
Price of a good relative to an aggregate measure of prices; price adjusted for inflation.
What is the Consumer Price Index (CPI)?
Measure of the aggregate price level. Published by Statistics Canada for Canada, represents the price level to purchase a basket of goods a typical Canadian would normally buy at a given year. Percentage changes in the CPI measure the rate of inflation in the economy.
What is the Producer Price Index (PPI)?
Measure of the aggregate price level for intermediate products and wholesale goods.
How do you calculate real price using CPI?
Real Price = Nominal Price * CPI base year/CPI current year
How do you convert CPI from base year x to the other base year y?
CPI of year i based on year y = (CPI of year i based on year x/CPI of year y based on year x) *100
