Microeconomics Exam 1 // ECO 2023

explains and predicts the behavior of consumers, firms, and govt

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

the value of the next best alternative

choosing the option that offers the greatest benefit at the least possible cost (aka rational behavior)

additional or incremental

the indirect impact of an event or policy that may not be easily and immediately observable

developing a theory from basic principles and testing it against events in the real world

can be supported or refuted with the scientific method

opinion or value based; cannot be supported by the scientific method

other things constant

the false assumption that what is true (or good) for a part (or individual) will also be true for the whole

both parties

the monetary and non-monetary barrier that lowers the benefits of trade
ex- taxes, searching the web looking for airline tickets (spend hrs looking for the best price)

A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed

make the good for which you have a low opportunity cost and trade for the good for which you have a high opportunity cost

what to produce, how to produce it, for whom do you produce it for

inverse relationship between price and quantity demanded

decrease in satisfaction or usefulness from having one more unit of the same product (0 to 1 vs 300 to 301)

when the price of one good falls, people substitute away from relatively more expensive goods to the relatively cheaper goods

when the price of one good falls, real consumer income rises so people buy more

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

the change in quantity demanded brought about by a change in price

when something else changes, demand changes (income, number of consumers, prices of related goods, expectations, demographics, tastes and preferences)

used in place of each other
an increase in price for first good = increase demand for second
decr price in first = decr demand for second
ex: milk and doctor pepper

usually consumed at the same time
incr in price for first good will decr demand for the second good, vice versa
ex- peanut butter and jelly

The positive relationship between price and quantity of a good supplied: An increase in market price will lead to an increase in quantity supplied, and a decrease in market price will lead to a decrease in quantity supplied.

the difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives

quantity supplied is greater than quantity demanded

quantity demanded is greater than quantity supplied

personal self-interest directed by market prices is a powerful force promoting economic progress