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Microeconomics > Microeconomics Test 1 > Flashcards

Microeconomics Test 1 Flashcards

1
Q

Ceteris Paribus

A

All Else Equal

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2
Q

Correlation means _____________________________

A

two variables change at the same time

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3
Q

Define Positive correlation

A

when both variables move in same direction

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4
Q

Define Negative correlation

A

one increase and other decreases

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5
Q

Spurious correlation is defined as

A

A->B, B->A, A&B together Trying to relate un-relatable variables

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6
Q

What is Post Hoc Fallacy

A

Post hoc Ergo Prompter which equals “after this therefore because of this” A -> B. A is always first

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7
Q

Define Fallacy of Composition

A

What is true for the individual is not true for the group.

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8
Q

What are the four criteria for evaluating economic policy

A
  1. Efficiency. (Microeconomics)
  • A. Produce
  • B. What people want
  • C. At lowest possible cost
  • D. Using all of societies resources
  1. Equity - Is it fair
  2. Growth - is the economy producing more from year to year. (Macroeconomics)
  3. Stability - Avoiding large increase or large decreases in inflation(Macroeconomics)
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9
Q

Define Scarecity

A

Wants and needs are limitless; resources are not

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10
Q

Define production

A

Production is the process that transforms resources into final goods and services or you can say inputs into outputs.

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11
Q

Name the three economic questions that we deal with in microeconomics

A
  • What to produce - > what people want
  • How to produce. - > lowest possible cost
  • For whom to produce -> for those with the resources and means to buy it
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12
Q

Define Absolute advantage

A

Absolute advantage

The country or individual who can product the most (in total units) of a good has the absolute advantage.

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13
Q

Define Comparative advantage:

A

Comparative advantage:

The individual or country that can produce a good at the lowest
oppurtunicy cost is said to have the comparative advantage.

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14
Q

What is the formula for Oppurtunity Cost

A

Opportunity Cost = what you give up / what you get

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15
Q

According to David Ricardo’s theory of Comparative Advantage …

A

countries should specialize in production of goods in which they have comparative advantage and should trade in other

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16
Q

Define Terms of trade

A

Trade ratio of goods between the two trading partners

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17
Q

What is the Production Possibilities Frontier

A

Production Possibilities Frontier

Graph that shows all combinations of goods that can be produced using all of society’s resources.

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18
Q

True or False

PPF is concave to the origin

A

True

PPF is concave to the origin

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19
Q

Define the Law of Increasing Opportunity Costs

A

The Law of Increasing Opportunity Costs states that as society produces more of a good it must give up increasingly more other goods to produce it.

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20
Q

What are the criteria for effiecient production

A

For it to be efficient it must meet all three criteria,

  • Producing what people want
  • At the lowest cost
  • Using all the available resources
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21
Q

True or False

There are Pure Communist and Free Market economies in the world

A

False

There are no Pure Communist systems or Free Market economies.

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22
Q

Define Firm

A

Firm. =. Person. Or a group. Of. People that produces goods or services, by transforming input into outputs.

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23
Q

What is Economics

A

Economics is a Social Science that studies the allocation of scarce resources among competing end.

24
Q

What is social science

A

Social Science is the study of human behavior

25
Q

What is a Resource

A

Resource = anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants.

26
Q

List 4 reasons for studying economics

A
  • Learn a new way of thinking
  • Understand society
  • Informed voter
  • Understand international and global issues
27
Q

What is a Normative economic statement

A

Normative economic statements - Factual description about relationship between two or more variables but it judges if the relationship is good or bad and recommends policy changes.

28
Q

What is a Positive economic statement?

A

Positive economic statement - Factual description about the relationship between two or more variables.

29
Q

Marginal costs are defined as?

A

The cost to produce one more of an item

30
Q

What are sunk costs?

A

Sunk Costs = Costs that have already been paid.

31
Q

What are Opportunity Costs?

A

Opportunity Costs - The cost of the next best alternative given up (forgone) when making a decision

32
Q

What is the calculation for finding Economic Costs?

A

Economic Costs = Accounting Costs + Opportunity Costs

33
Q

Define the components of the Circular Flow Model

A
34
Q

Define and Entrepreneur

A

Entrepreneur - Organzies. And assumes. The risk. Of a firm

35
Q

Define a market

A

Market is a group of buyers and sellers with the potential for trade.

36
Q

Qd

A

Quantity Demanded

37
Q

What happens to Qd when price increases

A

When Price increases Qd decreases

price that is so high that Quantity Demanded is zero. (Consumers won’t buy it

38
Q

Which Demand Curve reflects and increase A or B

A

A

A Shift to the right reflects and increase

39
Q

Define Normal Good

A

Normal Good when income increases, demand for a normal good increases. When income decreases, demand for a normal good decreases. Example: Steak

40
Q

Define Inferior Good

A

Inferior Good when income increases, demand for an inferior good decreases. When income decreases, demand for an inferior good increases. Example: Ramen noodles

41
Q

Define Substitutes

A

Substitutes are goods that are used in place of each other. When the price of a substitute good increases, the demand for the other good increases. When the price of a substitute decreases, the demand for the other good decreases. Example: Advil and Motrin

42
Q

Define Complements

A

Complements are goods that are used together or in conjunction with each other. When the price of a complement increases, the demand for the other good decreases. When the price of a complement decreases, demand for the other good increases. Example: hot dogs and hot dog buns.

43
Q

What happens when the number of buyers in the market increases?

A

When the number of buyers in the market increases, demand for the good increase. When the number of buyers in a market decreases, the demand for the good decreases.

44
Q

A change in the Qd has what effect?

What would cause a change in Qd?

A

Change in Quantity Demanded is movement along the demand curve to a new point on the curve.

A change in quantity demanded is caused by a change in the price of the good

45
Q

A change in demand has what effect?

A

Change in Demand is a shift in the demand curve, forming a brand new demand curve.

46
Q

What causes a change in demand

A

A change in demand is caused by a change in Tastes & Preferences, Income, wealth, prices of related goods/services, number of buyers, or expectations.

47
Q

Define Equilibrium

A

Equilibrium in the market occurs at the point of intersection between the demand and supply curves.

48
Q

What is the equation for equilibrium

A

Qs=Qd

49
Q

At _______________ there is no tendency for price to change.

A

At equilibrium there is no tendency for price to change.

50
Q

What is a price floor

A

Price Floor is a government mandated minimum price. Firms may charge any price at the price-floor or higher.

51
Q

To be binding/effective the price-floor must be set where?

A

To be binding/effective the price-floor must be set above the equilibrium price.

If the price-floor is binding/effective, the price-floor will prevent the market from reaching equilibrium, causing a surplus.

52
Q

A price-floor set below the equilibrium price is _____________.

A

A price-floor set below the equilibrium price is a non-binding/ineffective price-floor.

If the price-floor is set below the market price, it will not prevent the market from reaching equilibrium. The equilibrium price and quantity will prevail because the market price is higher than the price-floor.

53
Q

What is a price ceiling?

A

Price Ceiling is a government mandated maximum price

54
Q

To be binding/effective the price-ceiling must be set ____________.

A

To be binding/effective the price-ceiling must be set below the equilibrium price.

If the price-ceiling is binding/effective, the price-ceiling will prevent the market from reaching equilibrium, causing a shortage.

55
Q

A price-ceiling set ________ the equilibrium price is a non-binding/ineffective price-ceiling.

A

A price-ceiling set above the equilibrium price is a non-binding/ineffective price-ceiling.

If the priceceiling is set above the market price, it will not prevent the market from reaching equilibrium.

56
Q
A

Microeconomics (3 decks)

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