Microeconomics Basics

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Posted on

May 22nd, 2023

question

Resources are Scarce

answer

the quantity available isn't large enough to satisfy all productive uses (ex. lumber, intelligence, petroleum)

question

Real Cost

answer

not just what you pay but also what you give up (aka opportunity cost- what you have to forgo to obtain your choice)

question

Marginal Decisions

answer

decisions whether to do a bit more or a bit less of an activity (you make a trade-off when you compare the costs/ benefits of doing something) (ex. studying one more hour, buying one more CD)

question

People exploit decisions to make themselves better off

answer

an incentive is anything that offers rewards to people who change their behavior (ex. if gas prices rise, people buy more fuel efficient cars)

question

Gains from trade

answer

people can get more of what they want through trade than they could if they tried to be self-sufficient (economy can produce more when they specialize in one field then trade for the rest)

question

Markets moved toward equilibrium

answer

anytime there is a change, the economy will move towards a new equilibrium

question

Resources should be used efficiently

answer

an economy is efficient if it takes all opportunities to make some people better off without making other people worse off (ex. of efficiency is never letting parking spaces go unused)

question

Markets usually lead to efficiency

answer

incentives built into a market economy already ensure that resources are usually put to goo use and opportunities to make people better off are not wasted

question

Government should intervene when markets are not efficient

answer

when individual actions have side effects that are not taken into account (externalities) then government intervention is necessary

question

spending becomes income

answer

when you buy a shoe that money becomes income for shoe manufacturer

question

spending can get out of whack

answer

too much spending causes inflation, too little causes recession

question

government policies can change spending

answer

when spending is out of whack, there is fiscal and monetary policy that can increase or decrease spending

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question

Resources are Scarce

answer

the quantity available isn't large enough to satisfy all productive uses (ex. lumber, intelligence, petroleum)

question

Real Cost

answer

not just what you pay but also what you give up (aka opportunity cost- what you have to forgo to obtain your choice)

question

Marginal Decisions

answer

decisions whether to do a bit more or a bit less of an activity (you make a trade-off when you compare the costs/ benefits of doing something) (ex. studying one more hour, buying one more CD)

question

People exploit decisions to make themselves better off

answer

an incentive is anything that offers rewards to people who change their behavior (ex. if gas prices rise, people buy more fuel efficient cars)

question

Gains from trade

answer

people can get more of what they want through trade than they could if they tried to be self-sufficient (economy can produce more when they specialize in one field then trade for the rest)

question

Markets moved toward equilibrium

answer

anytime there is a change, the economy will move towards a new equilibrium

question

Resources should be used efficiently

answer

an economy is efficient if it takes all opportunities to make some people better off without making other people worse off (ex. of efficiency is never letting parking spaces go unused)

question

Markets usually lead to efficiency

answer

incentives built into a market economy already ensure that resources are usually put to goo use and opportunities to make people better off are not wasted

question

Government should intervene when markets are not efficient

answer

when individual actions have side effects that are not taken into account (externalities) then government intervention is necessary

question

spending becomes income

answer

when you buy a shoe that money becomes income for shoe manufacturer

question

spending can get out of whack

answer

too much spending causes inflation, too little causes recession

question

government policies can change spending

answer

when spending is out of whack, there is fiscal and monetary policy that can increase or decrease spending

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