Questions and Answers
What is defined as the value of the next best alternative forgone when making a choice?
In a perfectly competitive market, which characteristic is NOT true?
The law of demand states that as price increases, what happens to quantity demanded?
What does a budget constraint graphically represent?
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What occurs when the price is above equilibrium, leading to an excess supply?
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In which market structure do few firms produce either identical or differentiated products and operate with interdependent decision-making?
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Which term refers to the additional cost incurred by producing one more unit of output?
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Which effect results in a change in quantity demanded due to income changes, holding price constant?
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Study Notes
Basic Concepts
- Microeconomics: study of individual economic units such as households, firms, and markets
- Economic Agents: individuals, households, firms, and government that make decisions about how to allocate resources
- Scarcity: fundamental problem of economics, where unlimited wants exceed limited resources
- Opportunity Cost: value of the next best alternative forgone when making a choice
Consumer Behavior
- Consumer Preference: individual's likes and dislikes
- Budget Constraint: graphical representation of possible combinations of two goods that a consumer can afford
- Demand: quantity of a good or service that a consumer is willing and able to purchase at a given price level
- Law of Demand: as price increases, demand decreases (ceteris paribus)
- Substitution Effect: change in quantity demanded of a good in response to a change in its price, holding utility constant
- Income Effect: change in quantity demanded of a good in response to a change in income, holding price constant
Production and Cost
- Production Function: relationship between the quantity of inputs used and the quantity of output produced
- Marginal Product: additional output produced by one additional unit of input
- Average Product: total output produced per unit of input
- Cost: expenditure incurred by a firm in producing a good or service
- Total Cost: sum of fixed and variable costs
- Marginal Cost: additional cost incurred by producing one additional unit of output
- Average Cost: total cost per unit of output produced
Market Structure
- Perfect Competition: many firms producing identical products, free entry and exit, perfect information
- Monopoly: single firm producing a unique product, barriers to entry, imperfect information
- Monopolistic Competition: many firms producing slightly differentiated products, free entry and exit, imperfect information
- Oligopoly: few firms producing either identical or differentiated products, interdependent decision-making, imperfect information
Market Equilibrium
- Market Equilibrium: point at which the supply and demand curves intersect, where quantity supplied equals quantity demanded
- Equilibrium Price: price at which the market is in equilibrium
- Equilibrium Quantity: quantity exchanged at the equilibrium price
- Surplus: excess supply, occurs when price is above equilibrium
- Shortage: excess demand, occurs when price is below equilibrium
Microeconomics
- Studies individual economic units: households, firms, and markets
- Examines economic agents: individuals, households, firms, and government who make decisions on resource allocation
Economic Fundamentals
- Scarcity: unlimited wants exceed limited resources, a fundamental problem in economics
- Opportunity Cost: value of the next best alternative forgone when making a choice
Consumer Behavior
- Consumer Preference: an individual's likes and dislikes
- Budget Constraint: graphical representation of possible combinations of two goods a consumer can afford
- Demand: quantity of a good or service a consumer is willing and able to purchase at a given price level
- Law of Demand: demand decreases as price increases, ceteris paribus
- Substitution Effect: change in quantity demanded in response to a price change, holding utility constant
- Income Effect: change in quantity demanded in response to an income change, holding price constant
Production and Cost
- Production Function: relationship between input quantity and output quantity
- Marginal Product: additional output produced by one additional unit of input
- Average Product: total output produced per unit of input
- Cost: expenditure incurred in producing a good or service
- Total Cost: sum of fixed and variable costs
- Marginal Cost: additional cost incurred by producing one additional unit of output
- Average Cost: total cost per unit of output produced
Market Structure
- Perfect Competition: many firms, identical products, free entry and exit, perfect information
- Monopoly: single firm, unique product, barriers to entry, imperfect information
- Monopolistic Competition: many firms, slightly differentiated products, free entry and exit, imperfect information
- Oligopoly: few firms, identical or differentiated products, interdependent decision-making, imperfect information
Market Equilibrium
- Market Equilibrium: point where supply and demand curves intersect, quantity supplied equals quantity demanded
- Equilibrium Price: price at which the market is in equilibrium
- Equilibrium Quantity: quantity exchanged at the equilibrium price
- Surplus: excess supply, occurs when price is above equilibrium
- Shortage: excess demand, occurs when price is below equilibrium
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Description
Test your understanding of fundamental microeconomics concepts, including economic agents, scarcity, and opportunity cost, as well as consumer behavior and preferences.
