Microeconomics Basics

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Questions and Answers

What is the fundamental economic problem in microeconomics?

  • Limited resources and unlimited wants (correct)
  • Unlimited resources and limited wants
  • Limited resources and limited wants
  • Unlimited resources and unlimited wants

What is the concept that describes the value of the next best alternative that is given up when a choice is made?

  • Opportunity Cost (correct)
  • Rational Choice
  • Scarcity
  • Economic Efficiency

What is the term for goods or services that can be used in place of each other?

  • Complements
  • Substitutes (correct)
  • Close Substitutes
  • Perfect Substitutes

What is the term for the expense of producing a good or service?

<p>Cost (D)</p> Signup and view all the answers

What is the market structure in which many firms produce a homogeneous product, and there is free entry and exit?

<p>Perfect Competition (D)</p> Signup and view all the answers

What is the term for the price at which the quantity supplied equals the quantity demanded?

<p>Equilibrium Price (B)</p> Signup and view all the answers

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Study Notes

Microeconomics

Definition

  • Study of individual economic units such as households, firms, and markets
  • Examines how these units make decisions about the allocation of resources and the prices of goods and services

Key Concepts

  • Scarcity: The fundamental economic problem of unlimited wants and needs, but limited resources
  • Opportunity Cost: The value of the next best alternative that is given up when a choice is made
  • Rational Choice: The idea that individuals and firms make decisions based on maximizing their utility or profit

Consumer Behavior

  • Demand: The quantity of a good or service that consumers are willing and able to buy at a given price level
  • Law of Demand: The inverse relationship between the price of a good and the quantity demanded
  • Substitutes: Goods or services that can be used in place of each other
  • Complements: Goods or services that are used together

Production and Cost

  • Production: The process of transforming inputs into outputs
  • Cost: The expense of producing a good or service
  • Fixed Cost: A cost that remains the same even if the level of production changes
  • Variable Cost: A cost that changes as the level of production changes
  • Average Cost: The total cost divided by the quantity produced
  • Marginal Cost: The additional cost of producing one more unit of a good or service

Market Structure

  • Perfect Competition: A market structure in which many firms produce a homogeneous product, and there is free entry and exit
  • Monopoly: A market structure in which a single firm produces a product, and there are barriers to entry
  • Monopolistic Competition: A market structure in which many firms produce differentiated products, and there is free entry and exit
  • Oligopoly: A market structure in which a few firms produce a product, and there are barriers to entry

Market Equilibrium

  • Supply and Demand: The interaction between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy
  • Equilibrium Price: The price at which the quantity supplied equals the quantity demanded
  • Equilibrium Quantity: The quantity traded at the equilibrium price

Microeconomics

  • Study of individual economic units, including households, firms, and markets
  • Examines how these units make decisions about resource allocation and prices of goods and services

Key Concepts

  • Scarcity: Unlimited wants and needs, but limited resources
  • Opportunity Cost: Value of the next best alternative given up when a choice is made
  • Rational Choice: Individuals and firms make decisions to maximize utility or profit

Consumer Behavior

  • Demand: Quantity of a good or service consumers are willing and able to buy at a given price level
  • Law of Demand: Inverse relationship between price and quantity demanded
  • Substitutes: Goods or services used in place of each other
  • Complements: Goods or services used together

Production and Cost

  • Production: Transforming inputs into outputs
  • Cost: Expense of producing a good or service
  • Fixed Cost: Cost that remains the same even if production level changes
  • Variable Cost: Cost that changes as production level changes
  • Average Cost: Total cost divided by quantity produced
  • Marginal Cost: Additional cost of producing one more unit of a good or service

Market Structure

  • Perfect Competition: Many firms produce a homogeneous product, with free entry and exit
  • Monopoly: Single firm produces a product, with barriers to entry
  • Monopolistic Competition: Many firms produce differentiated products, with free entry and exit
  • Oligopoly: Few firms produce a product, with barriers to entry

Market Equilibrium

  • Supply and Demand: Interaction between quantity supplied and quantity demanded
  • Equilibrium Price: Price at which quantity supplied equals quantity demanded
  • Equilibrium Quantity: Quantity traded at the equilibrium price

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