Podcast
Questions and Answers
What is the fundamental economic problem that leads to the concept of opportunity cost?
What is the fundamental economic problem that leads to the concept of opportunity cost?
Which of the following is a principle of rational choice theory?
Which of the following is a principle of rational choice theory?
What is the law of demand?
What is the law of demand?
What is the goal of consumers in utility maximization?
What is the goal of consumers in utility maximization?
Signup and view all the answers
What is the concept of diminishing marginal utility?
What is the concept of diminishing marginal utility?
Signup and view all the answers
What is the goal of firms in profit maximization?
What is the goal of firms in profit maximization?
Signup and view all the answers
What is marginal analysis?
What is marginal analysis?
Signup and view all the answers
What is the equilibrium price in a market?
What is the equilibrium price in a market?
Signup and view all the answers
What is a surplus in a market?
What is a surplus in a market?
Signup and view all the answers
What is the opportunity cost of choosing one option over another?
What is the opportunity cost of choosing one option over another?
Signup and view all the answers
Study Notes
Microeconomic Theory
Definition
Microeconomic theory is a branch of economics that studies the behavior and decision-making processes of individual economic units, such as households, firms, and markets.
Key Concepts
Opportunity Cost
- The value of the next best alternative that is given up when choosing one option over another
- Represents the trade-off between different choices
Scarcity
- The fundamental economic problem of unlimited wants and needs, but limited resources
- Leads to the concept of opportunity cost
Rational Choice Theory
- Assumes that individuals make decisions based on rational self-interest
- People make choices that maximize their utility or satisfaction
Consumer Behavior
-
Demand Theory
- Law of Demand: as price increases, quantity demanded decreases
- Demand Curve: downward sloping curve showing the relationship between price and quantity demanded
-
Utility Maximization
- Consumers aim to maximize their total utility or satisfaction
- Diminishing Marginal Utility: each additional unit of a good or service yields less utility than the previous unit
Producer Behavior
-
Supply Theory
- Law of Supply: as price increases, quantity supplied increases
- Supply Curve: upward sloping curve showing the relationship between price and quantity supplied
-
Profit Maximization
- Firms aim to maximize their profits
- Marginal Analysis: comparing the additional cost of producing one more unit with the additional revenue it generates
Market Equilibrium
- Equilibrium Price: the price at which the quantity demanded equals the quantity supplied
- Equilibrium Quantity: the quantity at which the quantity demanded equals the quantity supplied
- Surplus: when quantity supplied exceeds quantity demanded
- Shortage: when quantity demanded exceeds quantity supplied
Microeconomic Theory
Definition
- Microeconomic theory studies the behavior and decision-making processes of individual economic units, such as households, firms, and markets.
Key Concepts
Opportunity Cost
- The value of the next best alternative that is given up when choosing one option over another.
- Represents the trade-off between different choices.
Scarcity
- The fundamental economic problem of unlimited wants and needs, but limited resources.
- Leads to the concept of opportunity cost.
Rational Choice Theory
- Assumes that individuals make decisions based on rational self-interest.
- People make choices that maximize their utility or satisfaction.
Consumer Behavior
Demand Theory
- Law of Demand: as price increases, quantity demanded decreases.
- Demand Curve: downward sloping curve showing the relationship between price and quantity demanded.
Utility Maximization
- Consumers aim to maximize their total utility or satisfaction.
- Diminishing Marginal Utility: each additional unit of a good or service yields less utility than the previous unit.
Producer Behavior
Supply Theory
- Law of Supply: as price increases, quantity supplied increases.
- Supply Curve: upward sloping curve showing the relationship between price and quantity supplied.
Profit Maximization
- Firms aim to maximize their profits.
- Marginal Analysis: comparing the additional cost of producing one more unit with the additional revenue it generates.
Market Equilibrium
Equilibrium Price and Quantity
- Equilibrium Price: the price at which the quantity demanded equals the quantity supplied.
- Equilibrium Quantity: the quantity at which the quantity demanded equals the quantity supplied.
Market Disequilibrium
- Surplus: when quantity supplied exceeds quantity demanded.
- Shortage: when quantity demanded exceeds quantity supplied.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Explore the fundamentals of microeconomic theory, including opportunity cost, scarcity, and more. Learn how individual economic units make decisions and interact with markets.
