Study Guide - Midterm Flashcards
What is microeconomics?
The study of how society manages its scarce resources.
How people make decisions - 5 Principles
- Trade-Offs
- Opportunity Cost
- Decision Making
- Incentives
- Trade Makes People Better Off
Competitive Advantage
The ability to produce goods or services at lower opportunity costs compared to another producer.
What is an Autarchy
A country with no trade.
Absolute Advantage
The ability to make goods at lower costs.
What is a Demand Curve
A function that shows the quantity demanded at different prices.
Quantity Demanded
The quantity that buyers are willing and able to buy at a particular price.
A demand curve can read:
Horizontally - At a given price, how much are people willing to buy? Look at price then quantity.
Vertically - What are people willing to pay for a given quantity? Look at quantity then price.
An increase in demand shifts the demand curve which way?
To the Right - At each price, people are willing to buy more.
At each quantity, people are willing to pay a higher price.
Decrease in demand shifts the demand curve which way?
To the Left - At each price, people want to buy less.
At each quantity, people want to pay a lower price.
Factors that shift demand
Income.
Consumers, Buyers.
Price of substitutes.
Expectations.
Preferences.
What is a Supply Curve
A function that shows the quantity supplied at different prices.
Quantity Supplied
The quantity that sellers are willing and able to sell at a particular price.
A supply curve can read:
Horizontally - At a given price, how much are suppliers willing to sell.
Vertically - To produce a given quantity, what price must sellers be paid.
What is the Law of Supply
As the price rises, the quantity supplied increases.
Factors that shift supply
Technological innovations and changes in the price of inputs. Taxes and subsidies.
Expectations.
Entry or exit of producers.
Changes in opportunity costs.
What is Equilibrium
Quantity demanded Is equal to quantity supplied at the market equilibrium price.
What is a Shortage
Quantity demanded is greater than supply.
What is a Surplus.
Quantity of supply exceeds the quantity demanded.
What is Price Elasticity
Measures how responsive the quantity demanded is to a change in price.
Factors of Price Elasticity of Demand (PED)
Helps In finding substitutes.
Time to adjust to price change.
Definition of the product.
Necessities or Luxuries.
Number of close substitutes.
What is Elasticity of Supply
Measures how responsive the quantity supplied is to a change of price.
Factors that affect Elasticity of Supply
Local vs Global Production.
Time.
Share of the Market.
Production Cost.
What is the Price Floor
Legal Minimum Price. (Example: Minimum Wage)
