Microeconomics

Question 1

Microeconomics is

Answer 1

The study of how individuals, households, and firms make decisions about using limited resources.

Question 2

Economic resources include:

Answer 2

Human resources (workers and managers) and Nonhuman resources (land, technology,minerals, oil, etc)

Question 3

Microeconomists assume

Answer 3

that people and firms are rational and seek to maximize benefits

Question 4

Trade-offs:

Answer 4

Choosing one thing requires giving up another

Question 5

Scarcity:

Answer 5

The existence of limited resources

Question 6

When an individual or group makes a decision

Answer 6

Their opportunity cost is equal to the value of the foregone options

Question 7

Economic Units:

Answer 7

People, Households, and Firms

Question 8

Marginal Benefits:

Answer 8

Small, incremental benefits

Question 9

The law of demand:

Answer 9

When the price of a good increases, demand for it decreases, and vice versa.

Question 10

Demand schedule:

Answer 10

Lists the quantity demanded of a product or service at various prices.

Question 11

Market demand schedule:

Answer 11

A demand schedule that encompasses the entire market’s demand for a good or service at various price points.

Question 12

Market demand curve:

Answer 12

Shows the market demand schedule

Question 13

When demand curves shift left

Answer 13

Market demand has decreased

Question 14

When demand curves shift right

Answer 14

Market demand has increased

Question 15

Utility:

Answer 15

The satisfaction gained from consuming a food or service.

Question 16

A consumer’s total utility can be

Answer 16

positive or negative

Question 17

Utils:

Answer 17

Theoretical units used to measure satisfaction

Question 18

Marginal utility:

Answer 18

Utility gained from consuming one more unit of a good

Question 19

Substitute goods:

Answer 19

When the increased price of one good increases the demand for the price of another as the customer cannot afford this good and looks for a cheaper substitute

Question 20

Complementary goods:

Answer 20

When the increase in price of one good decreases demand for another such as flashlights and their batteries

Question 21

Price Elasticity of Demand (PED):

Answer 21

The percentage change in the quantity demanded of a good or service divided by the percentage change in the price

Used by Sellers to determine the potential loss of customers if prices are raised

Question 22

PED is a measure of how demand for a good changes in relation to a change in price. If a good is elastic:

Answer 22

Demand changes greatly in response to price changes & PED > 1

Question 23

PED is a measure of how demand for a good changes in relation to a change in price. If a good is unit elastic:

Answer 23

then the percentage change in quantity demanded is equal to that in price & PED = 1

Question 24

PED is a measure of how demand for a good changes in relation to a change in price. If a good is inelastic:

Answer 24

Demand changes slightly in response to price changes & PED < 1

Question 25

Cross-price elasticity:

Answer 25

is a measure of the effect a price change for one substitute good can have on the demand for another.

Question 26

Profit =

Answer 26

Total revenue - total cost

Question 27

Total cost =

Answer 27

fixed costs + variable costs

Question 28

Fixed costs:

Answer 28

Costs that do not change as the quantity produced changes

Question 29

Variable costs:

Answer 29

Costs that change as the quantity produced changes

Question 30

Production function:

Answer 30

The relationship between the quantity of inputs and the quantity of outputs

Question 31

Marginal product:

Answer 31

The increase in output resulting from adding one more unit of input

Question 32

Diminishing marginal product:

Answer 32

When marginal product begins to decrease for each new unit of input

Question 33

Marginal profit:

Answer 33

Profit earned on each subsequent unit sold

Question 34

Marginal profit =

Answer 34

Marginal revenue - marginal cost

Question 35

Marginal cost:

Answer 35

The cost of producing one additional unit of a good

Question 36

Marginal revenue:

Answer 36

The revenue generated by each unit sold

Question 37

Average revenue:

Answer 37

Total revenue / total number of units sold

Question 38

Profit maximisation:

Answer 38

The quantity produced at which marginal revenue equals marginal cost

Question 39

If marginal revenue > marginal cost then

Answer 39

increase production

Question 40

if marginal revenue < marginal cost then

Answer 40

decrease production

Question 41

Price elasticity of supply:

Answer 41

PES is the relationship between the supply of a good or service and how that supply or good is affected by price. PES is inelastic if a price change has little effect on the quantity supplied of a good. It is elastic if a price change has a large effect on the quantity supplied

Question 42

For some goods such as cars and apartments

Answer 42

the market is inelastic in the short run, but elastic in the long run

Question 43

For others such as aquarium fish that become endangered

Answer 43

the market supply is elastic in the short run, but inelastic in the long run

Question 44

The supply elasticity curve:

Answer 44

graphs PES value from price point to price point

Question 45

Market price:

Answer 45

The price at which a good or service is offered in the marketplace

Question 46

Law of supply:

Answer 46

When the market price for a good increases, the quantity that suppliers produce and sell increases, and vice versa

Question 47

Supply schedule:

Answer 47

Lists the quantity of a product supplied at various price points

Question 48

Supply curve:

Answer 48

Plots the supply schedule

Question 49

Market supply:

Answer 49

The summation of all of the individual supplies of a good or a service

Question 50

Market supply curve:

Answer 50

Shows how the total quantity supplied of a good changes as its price changes

Question 51

When the supply curve shifts left

Answer 51

Market supply decreases

Question 52

When the supply curve shifts right

Answer 52

Market supply increases

Question 53

Market equilibrium:

Answer 53

The point at which the market supply is equal to the market demand. When the amount of goods supplied is equal to the quantity demanded.

Question 54

Equilibrium price:

Answer 54

The price where equilibrium occurs

Question 55

Equilibrium quantity:

Answer 55

The quantity where equilibrium occurs

Question 56

Equilibrium point:

Answer 56

The point at which the equilibrium price is equal to the equilibrium quantity

Question 57

Price acts as a

Answer 57

motivator

Question 58

When there is a low price for goods or services,

Answer 58

consumers buy more and sellers supply less

Question 59

When there is a high price for goods or services,

Answer 59

consumers buy less and sellers supply more

Question 60

Law of supply and demand:

Answer 60

The price of any good will naturally adjust until market equilibrium is reached

Question 61

If supply > demand

Answer 61

There is a surplus, Prices will drop until equilibrium is reached

Question 62

If supply < demand

Answer 62

There is a shortage, Prices will rise until equilibrium is met

Question 63

Supply = Demand

Answer 63

Equilibrium has been reached

Question 64

To recognise events that alter equilibrium:

Answer 64

1. Identify a shift in the DC and/or SC 2. Determine if the curve(s) shift left or right 3. Use a graph to see how the shifts change the Equilibrium point