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Principles Of Microeconomics > Test #1 > Flashcards

Test #1 Flashcards

1
Q

Define Opportunity Costs

A

To obtain more of one thing, society sacrifices the opportunity of getting the next best thing that could have been created with those resources.

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2
Q

What is utility?

A

The pleasure, happiness, or satisfaction obtained from consuming a good or service

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3
Q

What is marginal analysis?

A

Comparisons of marginal benefits and marginal costs, usually for decision making.
-When economists make decisions, they must see if the benefit of spending extra money on something exceeds the cost to buy it.

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4
Q

What does marginal mean to economists?

A

Marginal = Extra/additional ex extra costs

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5
Q

What is an economic principle?

A

A statement about economic behavior or the economy that enables prediction of the probably effects of certain actions

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6
Q

What is the other-things-equal assumption?

A

The assumption that factors other than those being considered do not change.
-Ex: Taking into account consumer preferences when looking at the relationship of price of Pepsi to the amount of Pepsi purchased
(avoids confusion)

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7
Q

Define Microeconomics?

A

Concerned with decision making by individual customers, workers, households, and business firms.
-Concerned with the specifics, such as the price of certain products, revenue of particular households, etc

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8
Q

Define Macroeconomics

A

Examines the performance and behavior of the economy as a whole
-Ex: Economic growth, business cycles, etc.

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9
Q

What is the difference between positive and normative economics?

A
  • Positive economics: Focuses on facts and cause-effect relationships (what is)
  • Normative economics: Incorporates value judgements of what the economy should be like or what policy actions should be recommended. (what ought to be)
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10
Q

What is a budget line?

A

Graph curve that shows various combinations of two products a consumer can purchase with a specific income. (anything inside the budget line is attainable, while anything outside is not)

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11
Q

What are comic resources?

A

All natural, human, and manufactured resources that go into the production of goods and services
-These resources are classified into: Land, labor, capital, and entrepreneurial ability

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12
Q

What is a production possibilities table?

A

Lists the different combinations of two products that can be produced with a specific set of resources.
-Idea is sacrificing some of one good to obtain another good

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13
Q

What is a production possibilities curve?

A

Shows the data in production possibilities table graphically

  • Curve displays the different combinations of goods and services that society can produce in a fully employed economy
  • Each point represents a different maximum combination of two products if resources are fully employed
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14
Q

The number of one product that must be given up to obtain more of a different product is the ____

A

opportunity cost of that product

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15
Q

What is the law of increasing opportunity costs?

A

As the production of a particular good is increased, the opportunity cost of producing and additional unit rises (because more of that unit can be made now)

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16
Q

What is the relationship between marginal benefit and marginal cost?

A
  • If MB > MC, economic activity should be expanded
  • if MC > MB, economic activity should be decreased
  • if MC = MB, this is optimal activity
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17
Q

How is MB and MC represented in graph form?

A

MC and MB are equal at the intersection of line MC and MB.

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18
Q

What do points inside the original productions possibilities curve represent?

A

They represent situations where there is unemployment and the economy would produce less than the alternatives shown on the table

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19
Q

What would a greater abundance of resources being outputted than normal look like on a production possibilities curve?

A

Production possibilities curve shifts outward and to the right

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20
Q

What is Laissez Faire-Capitalism?

A

The government’s role is limited to protecting private property and establishing a legal environment in which contracts are enforced and people interact in markets to buy and sell goods, and resources
-Very limited government interference with economy

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21
Q

What is the command system?

A

Government owns most property resources, and economic decision making is set by a central economic plan created and enforced by the government.

  • Gov owns business firms, etc
  • Utilized in countries with socialist or communist governments
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22
Q

What is the market system?

A
  • Capitalism or mixed economy
  • Mixture of centralized gov economic initiatives and decentralized actions by individuals and firms.
  • Private individuals and firms own most of property resources (land and capital) in this system
  • Resources can be used as businesses see fit
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23
Q

What is freedom of enterprise?

A

Entrepreneurs and private businesses can can use economic resources to produce their choice of goods and services

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24
Q

What is freedom of choice?

A

Allows owners to employ or dispose of their property and money as they see fit.

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25
Q

What is consumer sovereignty?

A

Consumers control quantity of goods produced

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26
Q

What is creative destruction?

A

The creation of new products and production methods destroys older products

27
Q

What is the “invisible hand”?

A

firms and resource supplies are guided by an invisible hand that promotes public interest

28
Q

What is the circular flow diagram?

A

Illustrates the dynamic market economy’s repetitive flow of goods and services

29
Q

Describe what is a sole proprietorship, partnership, and corporation?

A
  • Sole proprietorship: Single person
  • Partnership: two or more individuals
  • Corporation: independent legal entity
30
Q

What is a product vs resource market?

A

Product: Households purchase goods and services produced by businesses
Resource: Households sell resources to businesses

31
Q

What is the demand schedule?

A

Curve that shows the various amounts of a product the consumers are willing and able to purchase at a series of possible prices during a specified period of time
-Lesser the price = more demanded

32
Q

What is the law of demand?

A

As price falls, the quantity demanded rises

-As price rises the quantity demanded falls

33
Q

What is the income effect?

A

Indicates that a lower price increases the purchasing power of a buyer’s money income, enabling the buyer to purchase more of that product

34
Q

What is the substitution effect?

A

suggests that buyers have an incentive to substitute a product whose price has fallen for other products whose prices have remained the same

35
Q

What is the demand curve?

A

Inverse relationship between price and quantity demanded represented in graph form

36
Q

What is a determinant of demand?

A

Other factors that affect purchases besides price

-When determinants change, the demand curve shifts to the right or left

37
Q

What is a normal good vs inferior good?

A
  • Normal: Products whose demand varies directly with money income
  • Inferior: Goods whose demand varies inversely with money income
38
Q

What is the difference between complementary and substitute goods?

A

-Complementary are used with another good, substitute are used in place of another good

39
Q

What doe a change in demand imply?

A

implies a change in demand curve

40
Q

What is a change in quantity demanded?

A

Movement from one point to another, along a fixed curve

41
Q

What is the supply schedule?

A

Curve showing the various amounts of a product that producers are willing and able to make available for sale at each series of possible prices during a specific period

42
Q

What is the law of supply?

A

As price rises, the quantity supplies rises
-As price falls, the quantity supplied falls
(if the price of of corn is high the farmer will plant more corn because it’ll make him more money)

43
Q

What is the supply curve?

A

Price-quantity represented graphically

-Upward slope of curve represents producers offering more of a good for sale as its price rises on the market

44
Q

What are the determinants of supply?

A

resource prices, technology, taxes and subsidies, prices of other goods, producer expectations, and number of sellers on the market

45
Q

What does a change In demand imply?

A

An increase in supply shifts the curve to the right

46
Q

What is the equilibrium quantity?

A

Quantity at which the intentions of buyers and sellers match

47
Q

What is a surplus?

A

Excess supply

-Surpluses drive prices down

48
Q

What is productive efficiency?

A

Production of any particular good in the least costly way

49
Q

What is allocative efficiency?

A

Particular mix of goods and services most highly values by society

50
Q

What is a price ceiling?

A

Maximum legal price a seller may charge for a product or service

51
Q

What is a price floor?

A

Minimum price set by the government

52
Q

What is the price elasticity of demand?

A

Consumers responsiveness to a price change

53
Q

What is elastic vs inelastic?

A
  • Elastic: When modest price changes cause drastic changes in quantity purchased
  • Inelastic: Price changes only cause small changes in the amount purchased
54
Q

What is the equation for determining if the demand is price elastic or inelastic?

A

Ed = change in price of x /original price of x

55
Q

What is the equation for determining if the demand is price elastic or inelastic when there is a change in price?

A

Ed = (change in quantity /(sum of quantities/2)) /(change in price/(sum of price/2))

56
Q

How can you tell if the demand is elastic or inelastic?

A
  • if Ed > 1, it is elastic
  • if Ed < 1, it is inelastic
  • If Ed = 1, it is unit elastic
57
Q

What is perfectly elastic and perfectly inelastic?

A
  • If the price change results in no change to the quantity demanded, this is perfectly inelastic
  • If the price reduction causes buyers to increase purchases from zero to maximum, this is perfectly inelastic
58
Q

What is the total revenue test and what is the equation for it?

A

Total amount the seller receives from the sale of a product in a particular time period.
-Product price x quantity sold, or TR = P x Q

59
Q

What is the easiest way to determine if a demand is elastic or inelastic?

A

total-revenue test

  • if total revenue changes in the opposite direction from price, demand is elastic
  • if revenue change sin the same direction, it is inelastic
60
Q

What is price elasticity, and what is the equation?

A

If quantity supplied by producers is responsive to price change, supply is elastic.
-If not, it is inelastic
Es = Percentage change in quantity supplied of product x / percentage change in price of product x

61
Q

What is the immediate market period?

A

Length of time over which producers are unable to respond to a change in price with a quantity supplied

62
Q

What is cross elasticity of demand and what is the equation?

A

Measures the sensitivity of consumer purchases of one product to a change in the price of some other product
- Exy = Percentage change in quantity demanded of product x/ percentage change in price of product y

63
Q

What is income elasticity of demand and what is the equation?

A

Measures the degree to which consumers respond to a change in their incomes by buying more or less of a particular good
-Ei = percentage change in quantity demanded/ percentage change in income

Principles Of Microeconomics (1 decks)

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