Microeconomics Chapter 1 Flashcards

Economic Concepts and Definitions

• Utility refers to the pleasure or satisfaction derived from consuming goods or services.
• Economics is a social science focused on how individuals and societies make optimal choices under scarcity.
• Marginal Benefit vs. Marginal Cost: Choose to engage in an activity, like going to a movie, when the marginal benefit exceeds the marginal cost.
• Opportunity Costs arise when choosing one activity means forgoing another due to limited resources.
• Scientific Method: Employed by economists to formulate and test hypotheses, paralleling methods in physical and life sciences.
• Ceteris Paribus: Latin term meaning "other things equal," used to analyze the effect of one variable while holding others constant.

Microeconomics vs. Macroeconomics

• Macroeconomics examines the economy as a whole, focusing on aggregate outcomes.
• Microeconomics deals with the behavior of individual economic units within the economic system.

Types of Economic Statements

• Normative Statements: Based on value judgments; they express opinions about what ought to be.
• Positive Statements: Objective claims based on factual evidence, describing what is or what will be.

Economic Principles and Problems

• Economizing Problem: Necessity to make choices as wants exceed means.
• Factors of Production: Comprise land, labor, capital, and entrepreneurial ability—essential resources for production.
• Money: Not classified as an economic resource since it does not produce goods or services.

Production Possibilities Curve (PPC)

• PPC Principle: Represents the trade-off in producing more of one good at the expense of another when resources are fully utilized.
• Points inside the PPC indicate underutilization of resources, suggesting potential for increased output.
• Law of Increasing Opportunity Costs: Suggests that producing additional units of a good requires greater sacrifice of another good over time.
• Opportunity Cost Concept: Reflects that utilizing resources for one purpose limits alternative production.
• The optimal production point on the PPC is determined by comparing marginal benefits and marginal costs to find the most beneficial combination of goods produced.