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Micro economics > Definitions > Flashcards

Definitions Flashcards

1
Q

Microeconomics

A

The study of human behavior; how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

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2
Q

Types of economics
1. Command and control

A
  1. the governmnet controls everything and they own all the resources.
    They produce all goods and services in the economy.
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3
Q
  1. Market
A

A system where decisions are made by interactions between buyers and sellers. It is not controlled by the government and is used by most countries today.

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4
Q
  1. Mixed
A

Mix of government and markets ex: National defense

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5
Q

Opportunity costs

A

The potential benefit that is given when one alternative is selected over another.
How it alters people behavior: people will make a change in their decisions, the higher the opportunity cost the less likely the other choice will be made.

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6
Q

PPF

A

Curve showing the max attainable combinations of two goods that can be produced with available resources and current technology. Shift by economic growth. What gives the graph its shae? Allocative resources based on comparative advantage.

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7
Q

Resources

A
  1. Labor
  2. Land
  3. Capital
  4. Entrepreneurship
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8
Q

Circular flow diagram

A

shows how dollars flow through markets among households and firms.

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9
Q

Flow of money

A

Money flows from households to firms when households purchase goods and services, and it flows from firms to households as payment for the resources used in production.
Money flows from households to government by taxes and government to households by government spending. Financial institutions play a role in intermediating the flow of money between households and firms, facilitating the flow of funds within the economy through loans, investments, and savings.

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10
Q

Comparative vs absolute advantage

A
  • Comparative advantage is the ability to produce a good at a lower opportunity cost than another producer.
  • Absolute advantage is the ability to produce more of a good or service than competitors using the same amount of resources.
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11
Q

Supply curve
What is it?

A

A curve that shows the relationship between the price of a good and the quantity supplied

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12
Q

Supply curve
What shift it?

A

Income, prices of related goods, tastes, expectations, numbers of buyers.

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13
Q

Supply curve
Difference between quantity supplied and overall supply

A

Overall Supply is the entire supply curve, while quantity supplied is the exact figure supplied at a certain price.

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14
Q

Demand curve
What is it?

A

Curve that shows the relationship between the price of a product and the quantity of the product demanded

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15
Q

Demand curve
What shifts it?

A

Income, prices of related goods, taxes, expectations, numbers of buyers

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16
Q

Demand curve
Difference between quantity demanded and overall demand

A

Overall Demand is the entire curve and quantity demand is the demand of a product at a single point.

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17
Q

Elasticity of supply

A

Measurment how quantity supplied reacts to a change in price

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18
Q

Formula: Price elasticity of supply

A

% change in quantity supply / % change in price
elastic <1 - inelastic supply
0 - perfectly inelastic
1 - unit elastic supply

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19
Q

Cross price elasticity of demand

A

% change in quantity demanded of good X / % change in price of good Y

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20
Q

Elasticity of demand

A

How consumers react to a change in price

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21
Q

Formula: price elasticity of demand

A

Change in Q/ Sum of Qs / 2 / change in price / sum of prices / 2
ALWAYS NEGATIVE
AV> 1 = elastic
AV < 1 inelastic

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22
Q

Elasticity of demand
Cross price

A

Measure of how much the quantity demanded of one good responds to a change in the price of another good.

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23
Q

Elasticity of demand
Income

A

A measure of how much the quantity demanded of a good respond to a change in consumers income

24
Q

Elasticity of demand
Price

A

A measure of the responsiveness of quantity demanded to a change in price - ALWAYS NEGATIVE

25
Q

Welfare economics
Definition

A

The study of how the allocation of resources affects the economic well- being

26
Q

Welfare economics
Consumer surplus

A

The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

27
Q

Welfare economics
Producer surplus

A

The amount a seller is paid for a good minus the sellers cost of providing it

28
Q

Welfare economics
Total surplus

A

Consumer surplus + producer surplus

29
Q

Welfare economics
Deadweight loss

A

The reduction in economic surplus resulting from a market not being in competitive equilibrium

30
Q

Externalities

A

Side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.

31
Q

Externalities
Positive vs negative

A

Positive - an economic side effect that generates unexpected benefits
Negative- a cost that is suffered by a third party as a result of an economic transaction

32
Q

Externalities
What the curves look like
Positive vs negative

A

Positive externality shows the demand and supply curves at the market equilibrium and at the optimum equilibrium
Negative externality
Supply / cost curve farther to the left

33
Q

Externality
How to adjust for an externality

A

Taxing goods and services that generate spillover costs

34
Q

Examples of positive and negative externalities

A

Positives: Education
Negative: pollution

35
Q

Price Floor v. Price ceiling

A

Price floor- A legal minimum on the price at which a good can be sold
Price ceiling- A legal maximum on the price at which a good can be sold
A price ceiling above equilibrium is not binding, NO EFFECT ON THE MARKET

36
Q

Binding

A

Price ceiling - Binding, below equilibrium
Price floor - Binding, above equilibrium

37
Q

*Price Floor v. Price ceiling
Minimum wage

A

Lowest legal wage that can be paid to most workers

38
Q

*Price Floor v. Price ceiling
Rent control

A

A price ceiling on rental housing

39
Q

How taxes affect supply and demand

A

Government increase price of a good, supply curve shifts to the left, the consumer price increases, and sellers price decreases. A tax increase does not affect the demand curve, nor does it make supply or demand more or less elastic. Tax does not affect the demand curve directly because it does not change the consumers’ willingness to pay for the good.

40
Q

Trade

A

Trade allows parties to consume at points outside the PPF when they maximize comparative advantage in the production of a good.

41
Q

Trade
Domestic price

A

Opportunity cost of the good on the domestic market

42
Q

Trade
World price

A

Countries can buy products at their own domestic price, or they can buy the products at a cheaper world price

43
Q

Trade
Tariff

A

A tax on imported goods

44
Q

Trade
Producer surplus

A

The amount a seller is paid for a good minus the seller’s cost of providing it

45
Q

Trade
Consumer surplus

A

The amount a buyer is willing to pay for good minus the amount the amount the buyer actually pays for it

46
Q

Trade
Total surplus

A

Consumer surplus + producer surplus

47
Q

Trade
Deadweight loss

A

The reduction in economic surplus resulting from a market not being in competitive equilibrium

48
Q

Trade
Exporting country vs importing country

A

Exporting country: Domestic producers of the good are better off
Domestic consumers of the good are worse off
Trade raises the economic well-being of a nation.
- Gains of the winners exceed the losses of the losers
Producers - P.S: rises so producers make more money.
Importing country- higher consumer surplus: consumers are better off
smaller producer surplus; producers are worse off
Higher total surplus; trade raises the economic well-being of a nation
- gains of the winners exceed the losses of the losers
Consumers- C.S: raises so consumer spend less money

49
Q

Types of goods
Private goods

A

Goods that are both excludable and rival in consumption

50
Q

Public goods

A

Goods, ex: clean air, clean water, everyone shares
National defense is the most important public goods

51
Q

Common resources

A

Rival but not excludable

52
Q

Club Goods

A

Non rival and excludable

53
Q

Types of firms and adv/disadv
Sole proprietor

A

only 1 owner

54
Q

Partnership

A

2 or more

55
Q

Corporation

A

business owned by investors

Micro economics (4 decks)

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