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VWL > [MICRO] 01 - Introduction & The Economic Problem > Flashcards

[MICRO] 01 - Introduction & The Economic Problem Flashcards

1
Q

Definition: Microeconomics

A

Microeconomics studies economics of the individual and tries to apply it to the general public/a larger set of people

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2
Q

Definition: Macroeconomics

A

Macroeconomics studies the actors in an economy (households, firms and the government)

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3
Q

3 Basic Questions to understand an economic system

A

1) What gets produced?
2) How is it produced?
3) Who gets what is produced?

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4
Q

Definition: Capital

A

Things that are themselves produced and that are then used in the production of other goods and services

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5
Q

Definition: Factors of Productio

A

The inputs into the process of production: Land, Labour Capital

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6
Q

Definition: Production

A

The process that transforms scarce resources into useful goods and services

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7
Q

Definition: Inputs or Resources

A

Anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants

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8
Q

Definition: Outputs

A

The result of production: usable products but not necessarily a final consumption good

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9
Q

Definition: Opportunity Cost

A

The best alternative that we give up, when we make a choice or decision

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10
Q

Definition: Absolute Advantage

A

A producer has absolute advantage over another in the production of a good or service if it can produce that product using fewer resources.

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11
Q

Definition: Comparative Advantage

A

A producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost.

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12
Q

Definition: Consumer Goods

A

Goods produced for present consumption (within 1 year)

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13
Q

Definition: Investment

A

The process of using resources to produce new capital

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14
Q

Definition: Production Possibility Frontier (PPF)

A

A graph that shows all the combinations of goods and services that can be produced if all of society’s resources are used efficiently

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15
Q

Definition: Command Economy

A

Every question is answered by the government in this type of economy

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16
Q

Definition: Free Market Economy

A

Free markets are opposite to command economies, a free market economy (laissez-faire) allows actors to do as they please with complete lack of government interference in the economy.

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17
Q

Definition: Mixed Systems

A

More realistic as there are no pure systems. Government involvement is limited to some government enterprises, taxes, social welfare expenditures, whilst a large private sector still exists.

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18
Q

Definition: Households

A

The consuming units in an economy

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19
Q

Markets of a closed, laissez faire economy (4)

A

1) Goods and services Market
2) Labor Market
3) Capital Market
4) Land Market

  • Factors of production (also called factors market)
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20
Q

Definition: Goods and Services Market

A

Market in which final and intermediate goods are transacted.

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21
Q

Definition: Labour Market

A

The factor market in which households supply work for wages to firms that demand labour

22
Q

Definition: Capital Market

A

The factor market in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.

23
Q

Definition: Land Market

A

The factor market in which households supply land or other real property in exchange for rent.

24
Q

Definition: Quantity Demanded

A

The number of units of a product that a household would buy in a given period if it could bjuy all it wanted at the current market price.

25
Q

Factors influencing quantity demanded (6)

A

1) Price
2) Income
3) Accumulated wealth
4) Prices of other products
5) Tastes and Preferences
6) Expectations about future income, wealth and prices.

  • But for the demand curve we assume ceteris paribus
26
Q

Definition: Demand Schedule

A

A table showing how much of a given product a household would be willing to buy at different prices.

27
Q

Definition: Demand Curve

A

A (Price-Quantity) graph showing a households demand at different prices

28
Q

Definition: Law of Demand

A

Inverse relationship between price and quantity demanded.

29
Q

Definition: Substitution effect

A

Consumer purchasing more of the commodity whose price has fallen

30
Q

Definition: Income effect

A

Due to price reductions, the consumer has increased income and more purchasing power.

31
Q

Definition: Income

A

Sum of all of a household’s wages, salaries, profits, interest payments, rents and other forms of earnings in a given period of time.

32
Q

Definition: Wealth or net worth

A

Total value of what a household owns minus what it owes.

33
Q

Definition: Normal Goods

A

Goods for which demand goes up when income is higher and vice versa.

34
Q

Definition: Inferior Goods

A

Goods for which the demand goes up when income is lower and vice versa (rice, potatoes).

35
Q

Definition: Giffen Goods

A

Special type of good that does not obey the law of demand.

36
Q

Definition: Substitute Goods

A

Goods that can serve as a replacement for one another: when the price of one increases, demand for the other goes up.

37
Q

Definition: Perfect Substitute Goods

A

Identical products

38
Q

Definition: Complementary Goods

A

Goods that go together well. A decrease in the price of one results in an increase in demand for the other and vice versa. (Tea and Sugar)

39
Q

Types of Goods (6)

A

1) Normal Goods
2) Inferior Goods
3) Giffen Goods
4) Substitute Goods
5) Perfect Substitute Goods
6) Complementary Goods

40
Q

Definition: Shift of a demand curve

A

The change in a demand curve when there is a change in demand. This is a result of one of the factors (variables) affecting quantity demanded changing

41
Q

Definition: Movenment along a demand curve

A

Represents a change in quantity demanded

42
Q

Definition: Market Demand

A

The sum of all quantites of a good or service demanded per period by all the households buying in the market for that good or service

43
Q

Definition: Quantity Supplied

A

The maximum amount of a particular product that a firm will be willing and able to offer for sale at a particular price during a given time period.

44
Q

Definition: Supply Schedule

A

A table showing how much of a product firms will sell at different prices

45
Q

Definition: Law of Supply

A

Positive relationship between price and quantity of a good supplied.

46
Q

Definition: Supply Curve

A

A graph plotting quantity vs. Price and illustrating how much of a product a firm will sell at different prices.

47
Q

Definition: Cost of Production

A

Regardless of the price that a firm can command for its product, revenue must exceed the cost of producing the output for the firm to make a profit

48
Q

Definition: Movement along a Supply Curve

A

The change in quantity supplied

49
Q

Definition: Shift of a Supply Curve

A

The change in a supply curve, when there is a change in supply . This is a result of one of the factors (variables) affecting quantity supplied changing

50
Q

Definition: Equilibrium Price/Quantity

A

The condition that exists when quantity supplie and quantity demanded are equal. At equilibrium, there is no tendency for price to change.

51
Q

Definition: Shortage

A

The condition that exists when quantity demanded exceeds quantity supplied at the current price.

52
Q

Definition: Surplus

A

The condition that exists when quantity supplied exceeds quantity demanded at the current price

VWL (12 decks)

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