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Commerce > Principles of microeconomics > Flashcards

Principles of microeconomics Flashcards

1
Q

what is the economic problem?

A

to match the limited resources to unlimited wants and needs

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2
Q

what is the economy?

A

all the production and exchange activities that take place every day

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3
Q

what is economic activity?

A

how much buying and selling goes on in the economy over a period of time

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4
Q

what does economics study?

A

the interactions between households and firms in relation to this activity

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5
Q

what is an economic system?

A

the way in which resources are organised and allocated to provide for the needs of an economy’s citizens

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6
Q

why is the management of society’s resources important?

A

because resources are ‘scarce’

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7
Q

what does scarcity mean for society?

A

that it has limited resources and therefore cannot produce all the goods and services people wish to have

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8
Q

what is microeconomics?

A

the study of how households and firms make decisions and how they interact in markets

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9
Q

what is macroeconomics?

A

the study of economy-wide phenomena, including inflation, unemployment and economic growth

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10
Q

what does efficiency mean for society?

A

society gets the most that it can from its scarce resources

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11
Q

what does equity mean for society?

A

the benefits of those resources are distributed fairly among the members of society

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12
Q

what is the opportunity cost of an item?

A

what you give up to obtain that item

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13
Q

what are marginal changes?

A

small, incremental adjustments to an existing plan of action

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14
Q

how do people make decisions?

A

by comparing costs and benefits at the margin

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15
Q

what does rational mean?

A

people make consistent choices between alternatives

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16
Q

what is a market economy?

A

an economy that allocates resources through the decentralised decisions of many firms and households as they interact in markets for goods and services

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17
Q

why does market failure occur?

A

when the market fails to allocate resources efficiently

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18
Q
A
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19
Q

when the market fails what can government do?

A

intervene to promote efficiency and equity

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19
Q

what is externality?

A

the impact of one person or firm’s actions on the well-being of a bystander

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20
Q

what is market power?

A

the ability of a single person or firm to unduly influence market prices

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21
Q

what do economists make to make the world easier to understand?

A

assumptions

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22
Q

what is the art in scientific thinking?

A

deciding which assumptions to make

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23
Q

what is an endogenous variable?

A

a variable whose value is determined within the model

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24
Q

what is an exogenous variable?

A

a variable whose value is
determined outside the model.

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25
Q

what are positive statements?

A

statements that attempt to describe the world as it is

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26
Q

what are normative statements?

A

statements about how the world
should be

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27
Q

what are the forces that make economies work?

A

supply and demand

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28
Q

what does supply and demand determine?

A

prices in a market economy and how prices, in turn,, allocate the economy’s scarce resources

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29
Q

what is the model of the market based on supply and demand on?

A

a series of assumptions

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30
Q

what do the terms supply and demand refer to?

A

the behaviour of people as they interact with one another in markets

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31
Q

what is a market?

A

a group of buyers and sellers of a particular good or services

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32
Q

what is a competitive market?

A

a market in which there are many buyers and sellers

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33
Q

what is the quantity demanded?

A

the amount of a good that buyers are willing and able to purchase

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34
Q

what is the law of demand?

A

the quantity demanded of a good falls when the price of the good rises

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35
Q

what is the demand schedule?

A

a table that shows the relationship between the price of the good and the quantity demanded

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36
Q

what is the demand curve?

A

a graph of the relationship between the price of a good and the quantity

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37
Q

what is meant by ceteris paribus?

A

other factors affecting demand are held constant so that we can analyze the effect of a change in price on demand

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38
Q

what are subsitute goods?

A

two goods for which an increase in the price of one good leads to an increase in the demand for the other

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39
Q

what are complement goods?

A

two goods for which an increase in the price of one good leads to a decrease in the demand for the other

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40
Q

what is the quantity supplied?

A

the amount of a good that sellers are willing and able to sell

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41
Q

what is the law of supply?

A

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

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42
Q

what is the supply schedule?

A

a table that shows the relationship between the price of the good and the quantity supplied

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43
Q

what is the supply curve?

A

the graph of the relationship between the price of a good and the quantity supplied

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44
Q

what does the supply curve show?

A

how much producers offer for
sale at any given price

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45
Q

what is the equilibrium price?

A

the price that balances quantity supplied and quantity demanded

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46
Q

what is the equilibrium quantity?

A

the quantity supplied and the quantity demanded at the equilibrium price

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47
Q

where is the equilibrium price on the graph?

A

the price at which the supply and demand curves intersect

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48
Q

where is the equilibrium quantity on the graph?

A

at which the supply and demand curves intersect

49
Q

what is the law of supply and demand?

A

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance

50
Q

what is a shift in the supply curve called?

A

a change in supply

51
Q

what is a movement along a fixed supply curve called?

A

a change in quantity supplied

52
Q

what is a shift in the demand curve called?

A

a change in demand

53
Q

what is a movement along a fixed demand curve called?

A

a change in quantity demanded

54
Q

what is the term elasticity used to describe?

A

the way one thing changes in a given environment in response to another variable that has a changed value

55
Q

what is elasticity the measure of?

A

how much buyers and sellers respond to changes in market conditions

56
Q

what does elasticity allow us to do?

A

analyze supply and demand with greater precision

57
Q

what is the price elasticity of demand a measure of?

A

how much the quantity demanded of a good responds to a change in the price of that good

58
Q

what is the price elasticity of demand the percentage of?

A

change in quantity demanded given a percentage change in the price

59
Q

what does price elasticity of demand describe?

A

how changes in the price of goods and the demand for those same goods are related

60
Q

what is total revenue?

A

the amount paid by buyers and received by sellers of a good

61
Q

what does income elasticity of demand measure?

A

how much the quantity demanded of a good responds to a. change in consumers’ income

62
Q

how is income elasticity of demand computed?

A

the percentage change in the quantity demanded divided by the percentage change in income

63
Q

what does the cross-price elasticity of demand measure?

A

how much the quantity demanded of one good responds to a change in the price of another good

64
Q

how is the cross-price elasticity computed?

A

the percentage change in quantity demanded of the first good, divided by the percentage change in the price of the second good

65
Q

what is the price elasticity of supply a measure of?

A

how much the quantity supplied of a good responds to a change in the price of that good

66
Q

how do you compute the price elasticity of supply?

A

the percentage change in the quantity supplied divided by the percentage change in price

67
Q

what is market equilibrium?

A

when the quantity demanded is equal to the quantity supplied at the market price

68
Q

how can whether the market allocation is desirable or not be addressed?

A

by welfare economics

69
Q

what is welfare economics?

A

the study of how the allocation of resources affects economic well-being

70
Q

what is well-being?

A

the happiness or satisfaction with life as reported by individuals

71
Q

what is subject well-being?

A

the way in which people evaluate their own happiness

72
Q

what is objective well-being?

A

physical factors that widely account for our basic needs

73
Q

what is allocative efficiency?

A

a resource allocation where the value of the output by sellers matches the value placed on that output by buyers

74
Q

what does the equilibrium in a market maximise?

A

the total welfare of buyers and sellers

75
Q

what is willingness to pay?

A

the maximum amount that a buyer will pay for a good

76
Q

what is consumer surplus?

A

the buyer’s willingness to pay for a good minus the amount the buyer actually pays for it

77
Q

what does the market demand curve depict?

A

the various quantities that buyers would be willing and able to purchase at different prices

78
Q

what does consumer surplus measure?

A

the benefit that buyers receive from a good as the buyers themselves perceive it

79
Q

what is the bargaining process?

A

an agreed outcome between two interested and competing economic agents

80
Q

what is producer surplus?

A

the amount a seller is paid for a good minus the seller’s cost

81
Q

what is the cost?

A

the value of everything a seller must give up to produce a good

82
Q

what is the general equilibrium?

A

the notion that the decisions and choices of economic agents are coordinated across markets

83
Q

how is consumer surplus calculated?

A

value to buyers less the amount paid by buyers

84
Q

how is the producer surplus calculated?

A

amount received by sellers less the cost to sellers

85
Q

how is the total surplus calculated?

A

consumer surplus + producer surplus

86
Q

when does pareto efficiency occur?

A

if it is not possible to reallocate resources in such a way as to make one person better off without making anyone else worse off

87
Q

when does pareto improvement occur?

A

when an action makes at least one economic agent better off without harming another economic agent

88
Q

what is the social welfare function?

A

the collective utility of society which is reflected by consumer and producer surplus

89
Q

what is utility?

A

the satisfaction derived from the consumption of a product

90
Q

what does the amount buyers are willing or prepared to pay for a good tell us?

A

something about the value they place on it

91
Q

what is the budget constraint?

A

the limit on the consumption “bundles” that a consumer can afford

92
Q

what is an indifference curve?

A

a curve that shows consumption bundles that give the consumer the same level of satisfaction

93
Q

what is the marginal rate of substitution?

A

-the rate at which a consumer is willing to trade one good for another
-the amount of one good that a consumer requires as compensation to give up one unit of the other good

94
Q

what is total utility?

A

the satisfaction that consumers gain from consuming a product

95
Q

what is the marginal utility of consumption?

A

the increase in utility that the consumer gets from an additional unit of that good

96
Q

what is diminishing marginal utility?

A

the tendency for the additional satisfaction from consuming extra units of a good to fall

97
Q

what is the marginal rate of substitution equal to?

A

the slope of the indifference curve at any point

98
Q

how is the marginal rate of substitution calculated?

A

the marginal utility of one good divided by the marginal utility of the other good

99
Q

what is the income effect?

A

the change in consumption that results
when a price change moves the consumer to a higher or lower indifference curve.

100
Q

what is the substitution effect?

A

the change in consumption that
results when a price change moves the consumer along an indifference curve to a point with a different marginal rate of substitution.

101
Q

what can a consumer’s demand curve be viewed as?

A

a summary of the optimal decisions that arise from his or her budget constraint and indifference curves.

102
Q

what is normal goods?

A

a situation where a consumer wants more of a good when their income rises

103
Q

what is bounded rationality?

A

the idea that humans make decisions under the constraints of limited, and sometimes unreliable, information

104
Q

what are explicit costs?

A

input costs that require a direct outlay of money by the firm

105
Q

what are implicit costs?

A

input costs that do not require an outlay of money by the firm

106
Q

what is the production function?

A

the relationship between quantity of inputs used to make a good and the quantity of output of that good

107
Q

what is the marginal product of any input in production process?

A

the increase in output that arises from an additional unit of that input

108
Q

what is the diminishing marginal product?

A

the property whereby the marginal product of an input declines as the quantity of the input increases

109
Q

what are fixed costs?

A

costs that do not vary with the quantity of output produced

110
Q

what are variable costs?

A

costs that do vary with the quantity of output produced

111
Q

what are marginal costs?

A

measures the increase in total
cost that arises from an extra unit of production

112
Q

what is meant by the term ‘constant returns to scale’?

A

the property whereby long-run average total cost stays the same as the quantity of output change

113
Q

what is meant by the term ‘diseconomies of scale’?

A

the property whereby long-run average total cost rises as the quantity of output increases

114
Q

what are external economies of scale?

A

the advantages of large-scale production that arise through the growth and concentration of the industry

115
Q

why do diseconomies arise?

A

because of coordination and communication problems that are inherent in any large organisation

116
Q

what is X-efficiency?

A

the failure of a firm to operate at maximum efficiency due to a lack of competitive pressure and reduced incentives to control cost

117
Q

what does average revenue tell us?

A

how much revenue a firm receives for the typical unit sold

118
Q

what is the marginal revenue?

A

the change in total revenue from an additional unit sold

119
Q

what is normal profit?

A

the amount required to keep the factors of production in their current use

120
Q

what is abnormal profit?

A

the profit over and above normal profit

Commerce (11 decks)

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