ECON Flashcards
What is the central focus of economics?
Economics is primarily concerned with studying how people make choices that impact their lives, communities, nations, and the world.
How does examining everyday decisions, like buying bread, contribute to understanding economics?
Examining everyday decisions reveals the intricate processes in the supply chain, involving countless individuals, that collectively ensure a variety of products for consumers.
What fundamental concept in economics arises due to limited resources and unlimited human desires?
Scarcity is a fundamental concept, arising from the limitation of resources like time and money, juxtaposed with boundless human desires.
: How does scarcity lead to decision-making in economics?
: Scarcity leads to trade-offs, where choosing one option means forgoing another due to the limited availability of resources.
What does opportunity cost represent in the context of economic choices?
Opportunity cost represents what is sacrificed when making a choice – the value of the next best alternative that is foregone.
What assumption does economics make about how people make decisions?
Economics assumes that people make decisions rationally by weighing the benefits against the opportunity costs.
: What is the role of economic analysis in understanding complex interactions?
Economic analysis involves building theoretical models using diagrams or mathematical formulas to understand complex interactions in the economic system.
What is the difference between positive economics and normative economics?
Positive economics describes and predicts economic phenomena, emphasizing cause-and-effect relationships, while normative economics involves making value judgments about what should be.
How is efficiency measured in economics, and why is it important?
Efficiency is measured by Pareto efficiency, assessing whether an outcome can be improved for one person without harming another
What is the distinction between microeconomics and macroeconomics in the field of economics?
Microeconomics focuses on individual behavior and specific markets, while macroeconomics examines the overall performance of national economies. Both perspectives contribute to a comprehensive understanding of economic systems.
Q1: How does the modern economy achieve coordination, and what is the central focus of microeconomics?
The modern economy achieves coordination through the interaction of supply and demand in markets. Microeconomics focuses on perfectly competitive markets as a starting point to understand how individual choices shape supply and demand.
What are the key characteristics of perfectly competitive markets, and why is this model important in economic analysis?
Perfectly competitive markets are characterized by standardized goods, a large number of buyers and sellers, and participants well-informed about market prices. Despite seeming unrealistic, this model is crucial for economic analysis, providing a benchmark for comparison with more complex models.
How is the concept of a market explained, and what is emphasized regarding the competitive nature?
he concept of a market encompasses all buyers and sellers of a particular good or service. Whether organized like stock exchanges or less formal, markets involve the interaction between buyers and sellers.
What is demand, and how does the law of demand describe the relationship between price and the quantity demanded?
Demand is the quantity of a good buyers are willing and able to purchase, influenced by factors like price. The law of demand states that as the price of a good rises, the quantity demanded decreases, and vice versa.
How is demand illustrated in the program, particularly with an individual’s purchasing schedule and curve for gasoline?
he program illustrates demand with an individual’s purchasing schedule and curve for gasoline, showing how an individual’s quantity demanded changes with variations in the price of gasoline.
What factors are considered when exploring shifts in the demand curve, and what are normal and inferior goods?
Shifts in the demand curve are explored by considering factors like changes in income and prices of related goods. Normal goods have a positive relationship between demand and income, while inferior goods see demand fall as income rises.
How are substitutes and complements introduced in the context of goods, and what role do they play in influencing demand?
Substitutes and complements are introduced as goods whose prices affect the demand for other goods. Substitutes are alternatives, and a decrease in the price of one can lead to a reduction in the quantity demanded for the other. Complements, on the other hand, see an increase in demand when the price of one decreases.
Law of Demand:
The quantity of a good or service that buyers are willing to purchase in the market at a given price.
Law of Supply:
The quantity of a good or service that sellers are willing to provide in the market at a given price.
Perfect Competition
ny small firms, identical products, and easy entry and exit.
Monopoly: Single seller, unique product, and high barriers to entry.
Monopolistic Competition
any firms, differentiated products, and relatively easy entry and exit.
Oligopoly
Few large firms, interdependence, and significant barriers to entry.
Monopoly
: Single seller, unique product, and high barriers to entry.
rice Elasticity of Demand
Measures the responsiveness of quantity demanded to changes in price.
Income Elasticity of Demand
Measures the responsiveness of quantity demanded to changes in income.
Cross-Price Elasticity of Demand
easures the responsiveness of quantity demanded of one good to a change in the price of another good.
Utility
Satisfaction or pleasure derived from consuming goods and services.
Marginal Utility
Additional satisfaction gained from consuming one more unit of a good.
Budget Constraint
The limit on the consumption bundles that a consumer can afford.
Production Function
Describes the relationship between inputs (factors of production) and outputs (goods and services).
Consumer Surplus:
he difference between what a consumer is willing to pay for a good and what they actually pay. It represents the benefit to consumers.
Producer Surplus:
The difference between the price a producer receives and the minimum price they are willing to accept. It represents the benefit to producers.
Total Surplus
he combination of consumer surplus and producer surplus, representing the overall benefit of market transactions.
Shift in Demand:
A change in the quantity demanded at every price level, typically caused by factors like income, prices of related goods, tastes, expectations, and the number of buyers.
Shift in Supply:
A change in the quantity supplied at every price level, influenced by factors like input prices, technology, expectations, and the number of sellers
Pareto Efficiency
A situation where no individual can be made better off without making someone else worse off.
Shift in Supply
A change in the quantity supplied at every price level, influenced by factors like input prices, technology, expectations, and the number of sellers.
Gross Domestic Product (GDP):
GDP measures the total value of all goods and services produced within a country’s borders in a specific time period.
nemployment Rate:
The percentage of the labor force that is unemployed and actively seeking employment.
ggregate Demand and Aggregate Supply:
Aggregate Demand (AD) is the total quantity of goods and services demanded across all levels of an economy.
Aggregate Supply (AS) is the total quantity of goods and services that producers in an economy are willing and able to supply.
Fiscal Policy:
Government’s use of taxation and spending to influence the economy.
Monetary Policy:
Control of the money supply and interest rates by a central bank to achieve economic goals.
Phillips Curve
lustrates the relationship between inflation and unemployment.
GDP Calculation
GDP = Consumption + Investment + Government Spending + (Exports - Imports)
Unemployment Rate:
Unemployment Rate = (Number of Unemployed / Labor Force) * 100
Inflation Rate:
Inflation Rate = [(Current CPI - Previous CPI) / Previous CPI] * 100
