Questions and Answers
What is the study of individual economic units, such as households, firms, and markets?
What is the fundamental problem of economics?
What is the law that states as price increases, quantity demanded decreases?
What is the point at which the consumer maximizes satisfaction, given a budget constraint?
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What is the total value of goods and services produced within a country's borders?
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What is a sustained increase in general price level over time?
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What is the regulator and supervisor of the banking system?
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What is the function of money that facilitates exchange?
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Study Notes
Microeconomics
Basic Concepts
- Economics: Study of human behavior as a relationship between ends and scarce means
- Microeconomics: Study of individual economic units, such as households, firms, and markets
- Scarcity: Fundamental problem of economics, referring to the limited nature of resources
- Opportunity Cost: Value of the next best alternative given up when a choice is made
Demand and Supply
- Law of Demand: As price increases, quantity demanded decreases, ceteris paribus
- Law of Supply: As price increases, quantity supplied increases, ceteris paribus
- Demand Schedule: Table showing various quantities demanded at different prices
- Supply Schedule: Table showing various quantities supplied at different prices
- Equilibrium: Point at which demand and supply curves intersect, resulting in no excess demand or supply
Consumer Behavior
- Consumer's Equilibrium: Point at which the consumer maximizes satisfaction, given budget constraint
- Indifference Curve: Graphical representation of different combinations of goods providing equal satisfaction
- Budget Line: Graphical representation of different combinations of goods that can be purchased with a given income
Macroeconomics
National Income
- Gross Domestic Product (GDP): Total value of goods and services produced within a country's borders
- Net Domestic Product (NDP): GDP minus depreciation
- National Income: Total income earned by residents of a country
- Per Capita Income: Average income per person in a country
Inflation and Deflation
- Inflation: Sustained increase in general price level over time
- Deflation: Sustained decrease in general price level over time
- Causes of Inflation: Demand-pull, cost-push, and monetary policy
- Effects of Inflation: Redistributive, uncertainty, and hyperinflation
Banking and Money
- Money: Medium of exchange, unit of account, and store of value
- Functions of Money: Facilitates exchange, provides standard of value, and serves as a store of value
- Central Bank: Regulator and supervisor of the banking system, responsible for monetary policy
- Commercial Banks: Accept deposits, provide loans, and facilitate economic activity
Microeconomics
Basic Concepts
- Economics studies the relationship between human wants and scarce resources to satisfy those wants.
- Microeconomics focuses on individual economic units, such as households, firms, and markets, to understand their behavior and decision-making processes.
- Scarcity is the fundamental problem of economics, as it limits the availability of resources to meet unlimited human wants.
- Opportunity cost is the value of the next best alternative given up when a choice is made, which is a crucial concept in understanding decision-making.
Demand and Supply
- The law of demand states that as the price of a good increases, the quantity demanded decreases, ceteris paribus (all other things being equal).
- The law of supply states that as the price of a good increases, the quantity supplied increases, ceteris paribus.
- Demand schedules and supply schedules are tables that show the relationship between price and quantity demanded or supplied.
- The point of equilibrium is where the demand and supply curves intersect, resulting in no excess demand or supply.
Consumer Behavior
- A consumer's equilibrium is reached when they maximize their satisfaction, given their budget constraint.
- Indifference curves graphically represent different combinations of goods that provide equal satisfaction to a consumer.
- Budget lines graphically represent different combinations of goods that can be purchased with a given income.
Macroeconomics
National Income
- Gross Domestic Product (GDP) measures the total value of goods and services produced within a country's borders.
- Net Domestic Product (NDP) is GDP minus depreciation, which accounts for the wear and tear of capital goods.
- National Income is the total income earned by residents of a country, including income from abroad.
- Per Capita Income is the average income per person in a country.
Inflation and Deflation
- Inflation is a sustained increase in the general price level over time, eroding the purchasing power of money.
- Deflation is a sustained decrease in the general price level over time, increasing the purchasing power of money.
- Causes of inflation include demand-pull, cost-push, and monetary policy.
- Effects of inflation include redistributive effects, uncertainty, and hyperinflation.
Banking and Money
- Money serves as a medium of exchange, unit of account, and store of value.
- The functions of money include facilitating exchange, providing a standard of value, and serving as a store of value.
- Central banks regulate and supervise the banking system and are responsible for monetary policy.
- Commercial banks accept deposits, provide loans, and facilitate economic activity.
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Test your knowledge of fundamental microeconomics concepts, including economics, scarcity, opportunity cost, and the law of demand.