question
What is Economics?
answer
the study of how agents (individuals, firms. governments, etc.) make choices, interact and respond to incentives.
question
The two branches of Economics
answer
Microeconomics and Macroeconomics
question
Microeconomics is:
answer
studying the choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments.
question
Scarcity
answer
the condition in which our wants are greater than the limited resources available to satisfy those wants.
question
Opportunity Costs
answer
the most highly valued opportunity or alternative forfeited when a choice is made.
question
Marginal Benefits
answer
Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity.
question
Marginal Costs
answer
Additional Costs; the costs connected with consuming an additional unit of a good or undertaking one more unit of an activity.
question
Efficiency
answer
Exists when marginal benefit equals marginal costs.
question
Incentive
answer
something that encourages or motivates a person to undertake an action.
question
Demand
answer
The willingness and ability of buyers to purchase different quantities of a good at different prices during a specific period.
question
Market
answer
Any place people come together to trade.
question
The Law of Demand
answer
States the price of a good rises, the quantity demanded of the good falls, and as the price of a good falls, the quantity demanded of the good rises, ceteris paribus.
question
The Law of Diminishing Marginal Utility
answer
Over a given period, the marginal (or additional) utility or satisfaction gained by consuming equal successive units of a good will decline as the amount consumed increases.
(Example: Your first hamburger is great, but the second isn't as satisfying.)
(Example: Your first hamburger is great, but the second isn't as satisfying.)
question
Normal Good
answer
A good which demand rises (or falls) as incomes rises (or falls). So it either rises and rises or falls and falls.
question
Inferior Good
answer
A good for which demand falls (or rises) as income rises (or falls). So it either rises and falls or falls and rises.
question
Substitutes
answer
Two goods that satisfy similar needs or desires. If two good are substitutes, the demand for one rises as the price of the other rises (or the demand for one falls as the price of the other falls).
Example: Coke and Pepsi
Example: Coke and Pepsi
question
Complements
answer
Two goods that are used jointly in consumption. If two goods are complements, the demand for one rises as the price of the other falls (or the demand for one falls as the price of the other rises).
Example: Cars and Tires
Example: Cars and Tires
question
The Law of Supply
answer
As the price of a good rises, the quantity supplied of the good rises, and as the price of a good falls, the quantity supplied of the good falls, ceteris paribus.
question
Why Supply Curves are upward sloping?
answer
A higher price is an incentive to produces to produce more of the good.
question
Surplus
answer
Excess Supply - A condition in which the quantity supplied is greater than the quantity demanded. Surpluses occur only at prices above the equilibrium price.
question
Shortage
answer
Excess Demand - A condition in which the quantity demanded is greater than the quantity supplied, Shortages occur only at prices below the equilibrium price.
question
Equilibrium Price
answer
The price at which the quantity demanded of a good equals the quantity supplied.
question
Consumers' Surplus
answer
The difference between the maximum price a buyer is willing and able to pay for a good or service and the price actually paid. (CS= Max. buying price-price paid)
question
Producers' Surplus
answer
The difference between the price sellers receive for a good and the minimum or lowest price for which they would have sold the good. (PS= price received-minimum selling price)
question
Total Surplus
answer
The sum of consumers' surplus and producers' surplus (TS= CS+PS)
question
Price Ceiling
answer
A price ceiling is a government- mandated maximum price above which legal trades cannot be made.
question
If a Price Ceiling is set below the equilibrium price, what can happen?
answer
Shortages, Fewer Exchanges, Nonprice-rationing devices, buying and selling at prohibited prices, tie-in sales.
question
Price Floor
answer
A government-mandated minimum price below which legal trades cannot be made.
question
If a Price Floor is set below the equilibrium price, what can happen?
answer
Surpluses and Fewer Exchanges
question
How can we make a demand curve shift?
answer
Preference, Income, Other goods prices, Expectations, and Demographics.
question
Free Market
answer
-Less info
-Mistakes tend to be smaller
-Each person participates voluntarily
-Price acts as " rationing device"
-Mistakes tend to be smaller
-Each person participates voluntarily
-Price acts as " rationing device"
question
Planned Economy
answer
-Can control the direction of the market
-Can avoid problems from monopolies
-Large resource pool
-Can share wealth created with everyone
-Can avoid problems from monopolies
-Large resource pool
-Can share wealth created with everyone
question
How do individuals make choices?
answer
They make themselves as happy as possible given their recourses and options.
question
Marginal Utility
answer
The change in utility from getting (or losing) one unit of something
question
The law of Marginal Utility
answer
MU goes down as we get more of something. (and is higher when we have less of it)
1st slice of pizza is great, 2nd is good, 3rd is okay, 4th is meh, etc.
Suppose you have 3 apples and 2 oranges, and that gives you a utility of 14
1st slice of pizza is great, 2nd is good, 3rd is okay, 4th is meh, etc.
Suppose you have 3 apples and 2 oranges, and that gives you a utility of 14
question
Elastic
answer
refers to a market for a product or service that is price sensitive; that is, relatively small changes in price will generate fairly large changes in the quantity demanded.
(The quantity changes by more than the price, in terms of percent.P decreases by 10%, Q increases by 30%)
(The quantity changes by more than the price, in terms of percent.P decreases by 10%, Q increases by 30%)
question
Inelastic
answer
a given change in price causes a relatively smaller change in the quantity demanded. Ex: Gas
(The quantity changes by less than the price, in terms of percent - P decreases by 10%, Q increases by 5%)
(The quantity changes by less than the price, in terms of percent - P decreases by 10%, Q increases by 5%)
question
Total Revenue Equation
answer
price x quantity sold
question
Correlation vs. Causation
answer
Correlation = relationship; Causation= cause and effect every time.
Price and Quantity are correlated, but price was not causing quantity change.
Price and Quantity are correlated, but price was not causing quantity change.
question
Price of Related Goods: Substitutes
answer
If the price of one increases, the demand for the other will increase
question
Two Types of Goods
answer
Substitute & Complement
question
substitute goods
answer
A good that is bought instead of the item of interest
question
complementary goods
answer
A good that is bought with the item of interest
question
Price Elasticity of Demand
answer
A measure of the responsiveness of quantity demanded to changes in price.
question
Perfectly Elastic Demand
answer
The demand that occurs when a small percentage change in price causes an extremely large percentage change in quantity demanded (from buying all to buying nothing)
question
Perfectly Inelastic Demand
answer
The demand that occurs when quantity demanded does not change as price changes.
question
Determinants of Price Elasticity of Demand
answer
1) Number of Substitutes
2) Necessities versus luxuries
3) Percentage of one's budget spent on the good
4) Time
2) Necessities versus luxuries
3) Percentage of one's budget spent on the good
4) Time
question
Income Elasticity of Demand
answer
A measure of the responsiveness of quantity demanded to changes in income.
question
Utility
answer
A measure of the satisfaction, happiness, or benefit that results from the consumption of a good.
question
Total Utility
answer
The total satisfaction a person receives from consuming a particular quantity of a good.
question
Law of Diminishing Marginal Utility
answer
The marginal utility gained by consuming equal successive units of a good will decline as the amount consumed increases.
question
Price of Related Goods: Complements
answer
Complements are two goods that are bought and used together. If the price of one increases, the demand for the other will fall. (or vice versa)
question
Quanity Supply
answer
only deals with one specific market price and amount of quantity ( moves along the curve)
question
Supply
answer
includes all the possible market prices and the amount of quantity (moves the whole curve)
question
Supply vs. Quantity Supplied
answer
Supply refers to different amount of quantities a seller is willing to sell at various prices. Quantity supplied refers to specific amount that will be supplied at a specific price.
A change in supply and a change in quantity supplied are different things. The first is shown graphically as a movement of a supply curve while the second is shown as a movement along a curve. The first is caused by changes in costs and incentives that change how much a producer can and will produce at a given price.
A change in supply and a change in quantity supplied are different things. The first is shown graphically as a movement of a supply curve while the second is shown as a movement along a curve. The first is caused by changes in costs and incentives that change how much a producer can and will produce at a given price.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
