TCU Microeconomics Exam 1

a social science that studies how people, firms, and society make optimal choices under conditions of scarcity

•micro= individual, macro= aggregate
•micro studies people, firms, and industries; macro focuses on societies

Limited resources/lack of resources

The next best thing you could do with a resource. Also refereed to as the highest value alternative

everyone in econ makes choices in terms of their rational self-interest; not the same as being selfish

making decisions as long as the benefit outweighs the cost

making decisions "on the margin"

incentives: Things that add to a choices value
preferences: taste .
circumstances: other factors related to the current situation

•the goal is to form models & theories; •question→hypothesis→experiment/observe→collect/analyze data→conclusion

You have to take the ethics of the experiment into account.

To understand and predict.

"all else held constant"; significant because of confounding factors

Can't experiment on people.

Look for natural behavior.

prejudice; can affect the way you experiment

causation: a change in one variable leads to a change in another
correlation: two variables appear to be related (can be because of coincidence or a third variable)

positive: in agreement, based on fact
normative: opinion, "as it should be"

1. land→rents
2. labor→wages
3. capital (financial & physical)→interest
4. entrepreneurial ability→profit

•productive asks if we're producing a particular g/s using the least costly combination of resources

-allocative asks if we're producing the right mix of g/s or are we over/under producing any

•you can have productive efficiency w/o allocative, but can't have allocative w/o productive

1. what to produce?
2. how to produce?
3. for whom?
4. how to accommodate change?
5. how to promote progress?

•market system & command system represent two possible answers

•market- buyers & sellers control the market, command- central planning authority controls the market

•any institution that brings together buyers & sellers
•features: economic freedoms (choice & enterprise), private ownership of most resources, gov't plays an active but limited role (market failure & macroeconomic instability), price mechanism serves as signal, competition among buyers & sellers

a schedule/curve that shows quantity demanded of a g/s at various prices, within a period of time, ceteris paribus; shows willingness to pay

As the price of a good or service increases, the quantity demanded will decrease ceteris paribus.

Demand shows the quantity demanded at various prices, while quantity demanded shows how the price effects what is demanded as it moves along the curve . ???

price and demand have an inverse relationship, if price goes up, demand will go down and vise versa

income ( normal & inferior goods), number of buyers, expectations, tastes/preferences, price of related goods (complements & substitutes)

increase will make graph shift to the right, decrease to the left

a schedule/curve showing the quantity supplied of a g/s at various prices, within a certain time, ceteris paribus

That as the price of a good rises, the quantity supplied generally rises; as the price falls, the quantity supply falls.

...

price and supply are directly related, when price goes up, supply goes up, vise versa

resource prices, number of sellers, taxes & regulations, technology, expectations

increase moves to the right (down diagonally), decrease moves to the left (up diagonally)

achieving market equilibrium (market quantity & market price)

quantity supplied will be greater than quantity demanded, which leads to surplus

quantity supplied will be less than quantity demanded, which leads to shortage

quantity & price increase

quantity & price decrease

quantity increases, price decreases

quantity decreases, price increases