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Economics 101: Introduction to Microeconomics > First Midterm > Flashcards

First Midterm Flashcards

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1
Q

What is economics?

A

The study of the choices people make in the face of scarcity.

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2
Q

What is microeconomics?

A

The study of the choices and actions of individual economic units.

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3
Q

What is macroeconomics?

A

The study of the entire economy.

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4
Q

What is allocative efficiency?

A

Present when societies resources are so organized that the present value of net benefits are maximized.

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5
Q

What is positive economics?

A

Involves “what is.”

Can be tested through observation.

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6
Q

What is normative economics?

A

Involves “what ought’ to be.”

Based on values and beliefs.

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7
Q

What is a correlation fallacy?

A

The incorrect belief that correlation implies causation.

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8
Q

What is the post hoc fallacy?

A

The error in reasoning that assumes an event that precedes another event caused that event because it came first.

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9
Q

What is the fallacy of composition?

A

Incorrect belief that what is true for the individual is also true for the group.

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10
Q

What is the production possibilities frontier?

A

A graph that shows the combinations of goods that can be produced when the factors of production are utilized to their full potential.

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11
Q

What is a market?

A

A place of interaction between sellers and buyers.

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12
Q

What is the rationality assumption?

A

Individuals do not intentionally make decisions that will leave them worse off.

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13
Q

What are the three groups that act in a market?

A

Households, firms, and governments

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14
Q

What are the for institutions that govern a market economy?

A

Property rights, social institutions of trust, infrastructure, and money as a medium of exchange.

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15
Q

What is the Law of Demand?

A

As a product’s price increases, the quantity demanded decreases. As a product’s price decreases, the quantity demanded increases. Ceteris Paribus.

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16
Q

What are the variables that influence demand?

A

Prices of substitutes, prices of complements, population, expectations, preferences, and income.

17
Q

What are normal goods?

A

As income increases, demand increases.

18
Q

What are inferior goods?

A

As income increases, demand decreases.

19
Q

What is the Law of Supply?

A

As a product’s price increases, the quantity supplied increases. As a product’s price decreases, the quantity decreases. Ceteris Paribus.

20
Q

What are the variables that influence supply?

A

The number of firms, prices of inputs, taxes, technology, expectations, prices of substitutes in production, prices of complements in production, and changes in nature.

21
Q

When is equilibrium reached?

A

Occurs, when the quantity supplied, is equal to the quantity demanded.

22
Q

What is a price floor?

A

Occurs when the government sets a minimum price for a product.

23
Q

What is a price ceiling?

A

Occurs when the government sets a maximum price for a product.

24
Q

What are quotas?

A

Restrictions or limits on the quantity of product supplied.

25
Q

What is Income elasticity of demand?

A

% Change in quantity over % Change in income.

If income elasticity of demand is greater than 0, it is a normal good.
If income elasticity of demand is less than 0, it is an inferior good.

26
Q

What is cross price elasticity?

A

% change in the quantity of good A over % change in the price of good B.

If cross price elasticity is greater than 0, then goods A and B are substitutes.
If cross price elasticity is less than 0, then goods A and B are complements.

27
Q

What are the three assumptions made about consumer behaviour?

A

Completeness (good, bad, or indifferent), transitivity, and nonsatiation (more is better).

28
Q

What is utility?

A

The satisfaction received by consumers from the goods and services they consume.

29
Q

What is marginal utility?

A

The change in utility that results from an incremental change in consumption of a good or service.

Economics 101: Introduction to Microeconomics (4 decks)

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