Microeconomics Flashcards
economic models
Simplified representations of economic reality showing the relationship between certain economic variables
economic problem
The problem of relative scarcity – resources are limited relative to society’s unlimited wants
opportunity cost
Is the value of the next best alternative foregone
market economy
Private ownership of resources (capitalist)
planned economy
Resources are owned collectively (communist)
PPF assumptions
- Resources are fixed
- Technology is fixed
- The economy produces just 2 goods
economic growth
an increase in the capacity of the economy to produce goods and services over time
characteristics of market
o Buyers
o Sellers
o A commodity
o Voluntary exchange
o A price
o A process through which buyers purchase
product market
A product market deals in buying and selling finished goods or services, For example: Best and Less
factor market
A factor market deals in buying and selling factors of production (resources), For example: gold, iron ore, wheat
competitive market
o Large number of buyers and sellers
o Homogenous products
o Easy entry into the market
o Firms are price takers
non competitive market
o Smaller number of buyers and sellers
o Product differentiation
o Entry into the market is restricted
o Firms are price setters
price mechanism
The price mechanism refers to when the forces of demand and supply determine the equilibrium price of commodities
