Questions and Answers
What is the difference between microeconomics and macroeconomics?
Microeconomics studies the economic behavior of individual decision makers, while macroeconomics studies how an entire national economy performs.
Why is economics often described as the science of constrained choice?
Because our wants for goods and services are unlimited, but the resources to produce them are limited.
How does the tool of constrained optimization help decision makers make choices?
It allows decision makers to select the best alternative while accounting for limitations.
What role do the objective function and constraints play in a model of constrained optimization?
Signup and view all the answers
Why would a higher price (e.g., $5.00 per bushel) not be an equilibrium price in a competitive market for wheat?
Signup and view all the answers
Opportunity costs are an important concept in economics because they show that all actions involve tradeoffs.
Signup and view all the answers
Which of the following statements about economics is false? a) Microeconomics is the study of individual decision makers b) Macroeconomics studies national economies c) Economics deals with resource allocation d) All statements are true
Signup and view all the answers
Which of the following could be an example of a constraint? a) Max xy b) K + L c) 2A + 4B < 30 d) min zQ
Signup and view all the answers
Suppose that the price of housing, H is $1 and the price of food F is $2. What is the consumer objective function? A) max 1H + 2F B) max H + F C) H + F < 30 D) 1H + 2F < 30
Signup and view all the answers
What is an exogenous variable?
Signup and view all the answers
What is an endogenous variable?
Signup and view all the answers
Match the following key analytical tools with their descriptions:
Signup and view all the answers
What does the term marginal in microeconomics tell us?
Signup and view all the answers
What is marginal cost?
Signup and view all the answers
What is equilibrium in economics?
Signup and view all the answers
Study Notes
Difference Between Microeconomics and Macroeconomics
- Microeconomics focuses on individual economic decision makers such as consumers, workers, and firms.
- Macroeconomics examines the performance of an entire national economy, including aspects like interest rates, inflation, and business cycles.
Constrained Choice in Economics
- Economics is often termed the science of constrained choice due to the scarcity of resources against unlimited wants.
- Limited resources include labor, capital, and raw materials, meaning that choices about goods and services are restricted.
Constrained Optimization Tool
- Constrained optimization aids decision makers by helping them select the optimal choice while considering limitations and restrictions.
Objective Function and Constraints in Optimization
- The objective function indicates what needs to be maximized or minimized.
- Constraints define the limitations on choices and help determine the set of possible alternatives.
Market Equilibrium Explanation
- A price above equilibrium ($5.00) leads to excess supply as consumers buy less than suppliers sell.
- A price below equilibrium ($2.50) results in excess demand, prompting consumers to bid prices upward.
Opportunity Cost Concept
- Opportunity costs illustrate that all actions involve trade-offs due to limited resources.
Economics Statements - True/False
- All provided statements about the distinctions between microeconomics and macroeconomics and resource allocation are true.
Examples of Constraints
- A valid constraint example is represented as 2A + 4B < 30.
Consumer Satisfaction Objective Function
- The consumer's objective function for maximizing satisfaction is B) max H + F.
Exogenous Variable Definition
- An exogenous variable is considered given in economic analysis, originating from outside the system.
Endogenous Variable Definition
- An endogenous variable's value is determined within the economic system being analyzed.
Key Analytical Tools in Microeconomics
- Constrained optimization
- Equilibrium analysis
- Comparative statics
Constrained Optimization Defined
- This analytical tool assists in making optimal choices considering any possible limitations.
Objective Function Explained
- The objective function expresses the relationship that the decision maker aims to optimize (maximize/minimize).
Constraints Definition
- Constraints impose restrictions or limits on decision makers in an optimization context.
Marginal Concepts in Microeconomics
- The term marginal indicates how a dependent variable changes with the addition of one unit of an independent variable.
Marginal Cost Definition
- Marginal cost measures the impact of producing one additional unit of output on total costs.
Equilibrium Definition
- Equilibrium is a stable state that persists as long as external factors remain unchanged.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your understanding of Microeconomics with these flashcards covering key concepts from Chapter 1. Learn the differences between Microeconomics and Macroeconomics, as well as the fundamental principles that define economic choices. Perfect for students looking to solidify their foundational knowledge in economics.
