CoreMicroEconomics_CH_1-3 Flashcards
Microeconomics
The decision making by individuals, businesses, industries, and governments.
Macroeconomics
The broader issues in the economy such as inflation, unemployment, and national output of goods and services.
What is a Positive Question?
A question that can be answered using available information or facts.
What is a Normative Question?
A question that is based on societal beliefs on what should or should not take place.
What is Economics?
The study of how people (consumers) and firms make decisions given limitations.
Scarcity
Unlimited wants but limited resources.
What are the Seven Key Principles of Economics?
- Economics is about making choices with limited resources.
- When making decisions, one must take into account tradeoffs.
- Specialization leads to gains for all.
- People respond to incentives.
- Thinking on the margin (marginal cost/marginal benefit)
- Markets are generall efficient.
- Institutions are creativity explain the wealth of nations.
Opportunity Cost
the value of the next best alternative use of your time/money.
What are Four Factors of Production?
- Land - includes natural resources
- Labor
- Capital - anything that is manufactured and is used in the production process.
- Ideas
Production Efficiency
the ability to produce goods at their lowest resource cost.
Allocative Efficiency
the ability to produce goods that society desires.
Production Possibilities Frontier (PPF)
a model that shows the combination of two goods a society can produce at full employment.
Absolute Advantage
when a country can produce more of a good than another country.
Comparative Advantage
when one country can produce a good at a lower opportunity cost.
What is “Willingness to Pay?”
an individual’s valuation of a good or service; the most one is willing and able to pay.
What are 7 factors of “Willingness to Pay?”
- Convenience
- Alternatives
- Uncertinty
- Preferences
- Tired
- Substitutes
- Consistency
Law of Diminishing Returns
receiving less satisfaction with each additional unit of a good consumed.
Law of Demand
All else equal; as price increases, quantity demanded falls, and vice versa.
What causes a Demand curve to change?
- Tastes and Preferences
- Change in Income
- Price of Related Goods: Substitutes
- Price of Related Goods:Complements
- Number of Buyers
- Expectations of the Future
Law of Supply
All else equal; as price increases, quantity supplied rises, and vice versa.
How does the Supply curve change?
- Price: moves along curve
- Production technology
- Cost of Resources
- Prices of other Commodities (Production Substitutes)
- Expectations of the Future
- Number of Sellers
- Taxes and Subsidies
Market Segmentation
creating separate markets for a good for different groups of customers.
