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Microeconomics
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Study of the "smaller picture" of the economy. It focuses more on basic theories of supply and demand and how individual businesses decide how much of something to produce and how much to charge for it
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Circular Flow Diagram
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A diagram of the economy that shows the flow of goods & services, factors of production, and money between households and firms
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Ice storm damages most of the peach crop. What will happen to the price of peaches?
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price will increase because of the low supply.
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A publisher prints thousands of books, but few are sold. What will happen to the price?
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price will decrease because of the large supply.
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Law of Supply
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Principle that more will be offered for sale at high prices than at lower prices
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Law of Demand
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When prices increase, the quantity demanded will decreases.
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How are Market prices set?
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interaction between consumers & producers.
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Prices are an incentive. When prices are low what does that mean for consumers & producers?
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Consumers will buy more & producers will offer/make less.
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If the price of bread increases what will be the consumer response?
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Consumers will buy less. Quantity demanded will decrease.
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What is one major disadvantage of a sole proprietorship?
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unlimited liability
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Determinants of Supply
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(STEPING) - factors that cause a shift in the supply curve. Subsidies & Taxes; Technology; Expectations of sellers; Productivity; Input costs; Numbers of sellers; Gov't regulations.
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Determinants of Demand
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NICEST = Number of consumers, Income of consumers, Complimentary goods, Expectations of consumers, Substitute goods, & Taste of consumers.
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The greatest incentive for entrepreneurs?
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Profit
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Price Floor
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Legal minimum on price at which a good can be sold
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What effect does a Price Ceiling have?
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It is the Legal maximum on price at which a good can be sold - causes shortages
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Market with many sellers, selling identical products?
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Pure/Perfect competition
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Market with many sellers, selling similar products?
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Monopolistic competition
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In what market do sellers have the most control?
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Monoploy
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What does competition do to help consumers?
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more choices at lower prices
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If the price of hamburger patties increases what will happen to the demand for hamburger buns?
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Decrease demand for hamburger buns (Compliments)
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What are the characteristics of a monopoly?
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One seller, selling one product; strong control over prices.
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What are the characteristics of a corporation?
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Specialization, longevity; difficult entry; shared profits with stockholders.
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Oligopoly
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a market structure in which only a few sellers offer similar or identical products
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Monopoly
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A market dominated by a single seller
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Households
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In the Circular Flow, Provide labor to the factor market and buy final goods from the product market.
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Firms
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in the circular flow firms/businesses supply goods and services for an economy
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Goods
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Items purchased to satisfy needs and wants
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Services
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Actions or activities that one person performs for another for a fee.
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Resources
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All the things used in producing goods and services
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Supply
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the quantity of a good or service that businesses are willing and able to provide
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Demand
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The quantity of something that consumers are willing and able to buy
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Buyers
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purchase the goods and services that the firms in an industry produce
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Sellers
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Contractors, suppliers, or providers who provide goods and services to other organizations and determine the amount of supply.
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Liability
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the legally bound obligation to pay debts
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Barriers to entry
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obstacles a firm may face while trying to enter a market or an industry
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Price Control
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a gov't regulation that sets a maximum or minimum legal price for a particular good
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Product Differentiation
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The characteristic that separates monopolistic competition from pure competition
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