UNIT 3: MICROECONOMIC

Question 1

What does the term “trade-off” mean?

Answer 1

It means that when you want something, you must ignore others because of limited resources.

Question 2

What does the consumer theory describe?

Answer 2

Consumer theory describes how consumers maximize their well-being by making trade-offs.

Question 3

What does theory of the firm describe?

Answer 3

Theory of the firm describes how firms can best make trade-offs.

Question 4

Limited resources of consumers:

Answer 4

Their income

Question 5

Limited resources of workers:

Answer 5

Time, talent, knowledge, skills, experience, etc.

Question 6

Limited resources of firms:

Answer 6

Capital (money, land, buildings, equipment, etc.), technology, production capacity, etc.

Question 7

What does microeconomics study?

Answer 7

Microeconomics studies behavior of particular individuals and firms about decisions on particular commodity.

Question 8

Give some examples explaining trade-offs made by consumers.

Answer 8

Consumers can trade-off the purchase of clothes with the fees for English course/ the purchase of more of some goods with the purchase of less of others. Consumers can decide how much money to spend and how much money to save.

Question 9

Give some examples explaining trade-offs made by workers.

Answer 9

Workers can decide when to enter the workforce, after the graduation from the high school or university, which jobs to do, who to work for, how much time for work and how much time for leisure, and so on.

Question 10

Give some examples explaining trade-offs made by firms.

Answer 10

They have to decide what to produce, how to produce and for whom to produce. Firms trade-off hiring more workers and building new factories for doing both.

Question 11

SUMMARY

Answer 11

There are some main ideas in Unit 3.
Firstly, microeconomics studies behavior of particular individuals and firms about decision on particular commodity.
Secondly, microeconomics focuses on three themes of allocation of scarce resources, the roles of prices and the roles of markets.
Because of limited resources, all consumers, workers and firms have to make trade-offs. For example, firms trade-off hiring more workers and building new factories for doing both. All these trade-offs are determined by prices. In turn, price are determined by the law of supply and demand in a market economy.