Micro economics

Question 1

income

Answer 1

the amount of money one makes in a given amount of time

Question 2

wealth

Answer 2

what someone has minus what they owe

Question 3

opportunity cost

Answer 3

the cost of something is what you give up to get something

Question 4

objective economics

Answer 4

facts, no bias

Question 5

Normative economics

Answer 5

how something should be

Question 6

Marginal benefit

Answer 6

the additional benefit arising from a unit increase

Question 7

marginal cost

Answer 7

the cost added by producing one additional unit

Question 8

fixed cost

Answer 8

remain constant regardless quantity of goods
ie rent

Question 9

Variable cost

Answer 9

subject to change based on number of goods ie raw materials

Question 10

social costs

Answer 10

example: pollution

Question 11

model of circular flow

Answer 11

demonstrates how money moves through society- an endless flow of money

Question 12

factors of production

Answer 12

land, labor, capital, entrepreneurship

Question 13

theory of comparative advantage

Answer 13

the ability to produce a good or service at lower opportunity cost than its trading partners will keep competition moving

Question 14

absolute advantage

Answer 14

when a producer is able to produce a product using fewer resources

Question 15

comparative advantage

Answer 15

when a producer is able to produce a good at a lower cost (relative productivity)

Question 16

shortage

Answer 16

leads to price increase which decreases demand and increases supply

Question 17

perfectly competitive markets

Answer 17

all suppliers are equal and supply/demand are in equilibrium ie farmers market or offbrand cereal

Question 18

Price taker (feature of perfectly competitive market)

Answer 18

market price = marginal cost of production so no one can overcharge because other firms will undercut them

Question 19

Imperfect competition

Answer 19

Everyone is not a price taker. Monopoly allows individual producers or consumers to exercise some control over market prices

Question 20

Imperfect competition examples

Answer 20

Monopolies (one seller)
Oligopoly (few sellers)

Question 21

principle of supply and demand

Answer 21

Low prices = high demand, high prices = low demand
High supply = low prices, low supply = high prices

Question 22

Ceteris Paribus

Answer 22

other things stay the same

Question 23

invisible hand theory

Answer 23

adam smith theorized that households, firms, and others are guided by an “invisible hand” toward desirable market outcomes

Question 24

Production Possibility Frontier (PPF) Model

Answer 24

possible quantities that can be produced of two products that depend on the same finite resource

Question 25

laissez-faire

Answer 25

government in which individuals are free to pursue their own interests without government interference or regulation

Question 26

capital

Answer 26

things that are produced or used to produce other goods

Question 27

consumer surplus

Answer 27

price of a good is less than the price consumers are willing to pay
eg cost is 80 but they were willing to pay 100

Question 28

producer surplus

Answer 28

total revenue that a producer receives from selling their goods minus the marginal cost of production

Question 29

total surplus

Answer 29

consumer surplus + producer surplus

Question 30

elasticity

Answer 30

inelastic goods- water
elastic goods- concert tickets

Question 31

price elasticity of supply

Answer 31

firms being able to enter and exit a market over time leads to more elastic supply

Question 32

price ceiling

Answer 32

quantity demanded exceeds quantity supplied due to Binding Price ceiling (shortage)

Question 33

taxes

Answer 33

marginal costs that raise revenue for mainly public projects- leads to deadweight losses and lessens economic welfare for both buyers and sellers

Question 34

marginal tax rate

Answer 34

amount by which taxes increases from an additional dollar of income

Question 35

demand lines shifting

Answer 35

shift to right price and quantity supplied both increase
shift to left price and quantity supplied both decrease

Question 36

supply line shift

Answer 36

more supply demanded= higher price and less quantity
less supply demanded= lower price more quantity

Question 37

deadweight loss

Answer 37

cost to society due to market inefficiences

Question 38

externaltities

Answer 38

when a person engages in something that influences a bystander positive (smell from bakery) negative (pollution)

Question 39

monopoly

Answer 39

one seller dominates production and sale of a certain good in a certain area example local telephone service

Question 40

oligopoly

Answer 40

two or more sellers dominate the market; the number of firms is small enough to give each firm some market power. Example- airlines and pharmaceuticals

Question 41

monopolistic competition

Answer 41

many sellers compete when they offer similar substitutes that are not interchangeable for certain goods or services ie burger king and McDonalds both target a similar market and offer similar products and are actively competing with one another to seek to differentiate themselves

Question 42

Market baskets

Answer 42

selection of goods and services that are consistently sold through a market system
C + I + G + NX
consumption + investments + government spending + net imports and exports

Question 43

Exporting companies

Answer 43

comparative advantage allows each nation to specialize in what they do best
once trade is allowed domestic price equals world price

Question 44

benefits of international trade

Answer 44

increased variety of goods
lower costs through economies of sale
increase in competition
increased productivity