Microeconomics Test 1

Front 1

Economics

Back 1

how a society allocates scarce resources among essentially unlimited needs and wants.

Front 2

Microeconomics

Back 2

Originally called price theory, is the branch of economics concerned with decision-making by firms and individuals (or households) and results of those decisions. Usually, the scope is not larger than one market although one market could be large.

Front 3

Macroeconomics

Back 3

Originally called income theory, is the branch of economics concerned with the performance of the economy as a whole, including variables such as unemployment, general price levels and gross domestic product.

Front 4

The main difference between macroeconomics and microeconomics is the

Back 4

scope of analysis

Front 5

Scarcity implies

Back 5

Tradeoffs

Front 6

Opportunity cost

Back 6

the value of the next best alternative (choice) given up when making a decision.

Front 7

The reason why Economists disagree

Back 7

1. Differences in value judgements

2. Differences in scientific judgements

3. we may be unable to percieve reality due to factor in 1 & 2

Front 8

positive economics

Back 8

deals with " what is" No value judgements are made.

Front 9

Normative Economics

Back 9

deals with " what should be". Value judgements are made.


Deciding what material to cover in a course requires value judgements

Front 10

Why do economists use models

Back 10

Reality can be extremely complicated

Models : analyze what happened in the past and possibly predict what will happen in the future

Front 11

Economic goods

Back 11

are scarce good for which the desire to own or use them exceeds their availability at a price of zero

Examples: cars, diamonds, food

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Goods

Back 12

are things that satisfy needs or wants

Front 13

Three fundamental questions each economy must answer

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1. What to produce

2. For whom to produce

3. How to produce to satisfy some wants

Front 14

Factors of production

Back 14

Land- water,soil, air, plants, animals

Labor-human work

Capital- physical ( machinery etc.) and human ( knowledge, training etc.)

Front 15

Law of increasing relative cost

Back 15

Opportunity Cost of other goods forgone increases as an economu produces more of a good.

Front 16

efficeiency

Back 16

getting max. production out of the resources we have or producing an amount of output at minimal cost

Front 17

absolute advantage

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when one country can produce more of all types of goods than another country

Front 18

comparative advantage

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occurs when one country can produce a good at a lower opportunity cost than another country can produce

Front 19

Law of Increasing relative cost

Back 19

Opportunity cost of other goods forgone increases as an economy produces more of a good.

Front 20

Demand

Back 20

Shows quantity that one or more people want to buy at various prices holding everything else constant

Front 21

Law of demand

Back 21

as price per unit rises, quantity demanded falls if all else is constant

Front 22

2 reasons why demand curve is doward sloping

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1. Affordability- Consumers can afford less at higher prices

2. Substitutability- consumers seek less expensive alternatives as the price of a good goes up.

Front 23

Law of supply

Back 23

as price per unit rises, quantity supplies increases all other things equal

Front 24

2 reasons why the supply curve is upward sloping

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1. Higher prices create incentives for greater production which could result in higher profits

2. Producing larger quantities often creats a higher per unit cost of production. As production cost rises firms must charge more to earn profit or break even.

Front 25

equilibrium

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a point where no one in the market has an incentive to change his or her plans

Front 26

normal goods

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automobiles, vaction trips, homes- as income increases people tend to spend more on these goods ( vise versa )

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inferior goods

Back 27

instant mac & cheese, ramen noodles

As income increase in many cases consumers may tendd to cut back on these goods

Front 28

complementary goods

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If the price of peanut butter rises (falls), people buy less (more) jelly

Front 29

Substitutes

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If the price of cod rises (falls) people buy more (less) flounder

Front 30

Factors affecting demand

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1. Income
2. Tastes and Preferences
3.Prices of related goods
4.Number or Buyers
5.Expectations of future prices

Front 31

Factors affecting supply

Back 31

1. Number of firms
2.Input Costs
3. Technology and Productivity
4. Taxes and Subsidies
5.Price expectations