Economic Terms: Micro vs Macro

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Questions and Answers

Explain the fundamental difference in focus between microeconomics and macroeconomics. How do these two branches of economics complement each other?

Microeconomics studies individual economic agents like households and firms, while macroeconomics examines the aggregate behavior of the entire economy, considering variables like GDP and inflation. They complement each other by providing different levels of analysis to understand economic phenomena.

What is the key distinction between the ‘slicing method’ and the ‘lumping method’ in economic analysis?

The slicing method analyzes individual units or variables separately, while the lumping method aggregates these units into larger groups for analysis. Slicing examines individual components in detail, whereas lumping looks at the collective impact.

Differentiate between individual demand and market demand. How is market demand derived from individual demands?

Individual demand refers to the quantity of a good or service that a single consumer is willing and able to purchase at various price levels, while market demand is the total quantity that all consumers in the market are willing and able to purchase. Market demand is derived by horizontally summing up all the individual demand curves.

Explain the difference in the effects on the demand curve between 'expansion of demand' and 'increase in demand'.

<p>Expansion of demand (or contraction) is caused by a change in the price of the SAME commodity, it involves movement along the SAME demand curve. Increase in demand (or decrease) is due to factors OTHER than price; it involves a shift of the entire demand curve to the right or left.</p> Signup and view all the answers

What is the difference between GNP and GDP? How does understanding this difference help in assessing a country's economic performance?

<p>GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders, while GNP (Gross National Product) measures the total value of goods and services produced by a country's residents, regardless of location. The difference lies in net factor income from abroad. It helps in understanding the economic activities and income flows related to a nation.</p> Signup and view all the answers

Flashcards

Micro-Economics

Studies individual economic units, like households and firms.

Macro-Economics

Studies the economy as a whole, focusing on aggregate variables.

Individual Demand

Demand of a single consumer for a specific good or service.

Market Demand

Total demand of all consumers in a market for a good or service.

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Expansion of Demand

Increase in quantity demanded due to factors other than price.

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Study Notes

The text contains a list of economic terms to distinguish between

Microeconomics and Macroeconomics

Microeconomics focuses on individual economic agents, like households and firms
Macroeconomics examines the economy as a whole, including factors like inflation, unemployment, and economic growth

Slicing Method and Lumping Method

The Slicing Method involves analyzing individual components in detail
The Lumping Method aggregates components into broader categories for analysis

Individual Demand and Market Demand

Individual demand refers to the quantity a single consumer is willing and able to purchase at various prices
Market demand is the total quantity demanded by all consumers in a market at various prices

Expansion and Contraction of Demand

Expansion of demand is an increase in quantity demanded due to factors other than price
Contraction of demand is a decrease in quantity demanded due to an increase in price

Unitary Elastic Demand and Relatively Elastic Demand

Unitary elastic demand occurs when a percentage change in price leads to an equal percentage change in quantity demanded
Relatively elastic demand occurs when a percentage change in price leads to a larger percentage change in quantity demanded

Stock and Supply

Stock is the total amount of a commodity available at a specific point in time
Supply refers to the quantity of a commodity that producers are willing to offer for sale at various prices

Individual Supply and Market Supply

Individual supply refers to the quantity a single producer is willing and able to sell at various prices
Market supply is the total quantity supplied by all producers in a market at various prices

Simple Index Number and Weighted Index Number

A Simple Index Number measures the change in the price or quantity of a single item relative to a base period
A Weighted Index Number considers the relative importance of different items when measuring overall change

Output Method and Income Method

The Output Method calculates GDP by summing the value of all final goods and services produced in an economy
The Income Method calculates GDP by summing all income earned in an economy, including wages, profits, and rents

GNP and GDP

GNP (Gross National Product) measures the total income earned by a country's residents, regardless of where it was earned
GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders

Direct Tax and Indirect Tax

Direct taxes are levied directly on individuals or organizations and cannot be shifted to others
Indirect taxes are levied on goods and services and can be shifted to consumers through higher prices

Demand Deposit and Time Deposit

Demand deposits are funds held in an account that can be withdrawn at any time without prior notice
Time deposits are funds held in an account for a fixed period and cannot be withdrawn before maturity without penalty

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Description

Distinguish between key economic terms with clear definitions. Understand the differences between microeconomics and macroeconomics. This includes the slicing method and lumping method, individual vs market demand.