Microeconomics: Consumer and Business Decision Making
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Questions and Answers

Define Demand in economics.

Demand is the quantity of a good or service that buyers are willing to purchase at various prices during a given period of time.

What does the Law of Demand state?

  • The quantity demanded of a good or service decreases with its price. (correct)
  • The quantity demanded of a good or service increases with its price.
  • The quantity supplied of a good or service decreases with its price.
  • The quantity supplied of a good or service increases with its price.

    • The _____________ illustrates the demand schedule for a product.

    Demand Curve

    Equilibrium price is set by the interaction of demand and supply and may result in surpluses or shortages in the market.

    <p>True</p> Signup and view all the answers

    Define dynamic pricing.

    <p>Dynamic pricing is the practice of changing prices as demand increases or decreases within a short time frame.</p> Signup and view all the answers

    What is price elasticity of demand?

    <p>Expression of how responsive quantity demanded is to a change in price</p> Signup and view all the answers

    Price inelastic means that the quantity bought does not change much when prices rise or fall.

    <p>True</p> Signup and view all the answers

    _______ is a coefficient for a product of more than one, indicating that a given percentage change in price causes a greater percentage change in quantity demanded.

    <p>Elastic coefficient</p> Signup and view all the answers

    Match the following factors with their impact on the elasticity of supply:

    <p>Time = Ease of Storage Cost Factors = Change in QS</p> Signup and view all the answers

    Define Asset.

    <p>Anything of value owned by an individual or entity.</p> Signup and view all the answers

    Explain the Easy Money Policy.

    <p>A monetary policy approach that involves increasing the money supply to stimulate economic activity.</p> Signup and view all the answers

    What is the Rate of Return?

    <p>Gain on investment</p> Signup and view all the answers

    ______ is the global marketplace for trading national currencies against one another.

    <p>Foreign Exchange</p> Signup and view all the answers

    Inflation is a measure of the rate at which prices for goods and services are falling.

    <p>False</p> Signup and view all the answers

    Define Aggregate Demand (AD).

    <p>The total quantity of goods and services demanded by all households, firms, and the government in an economy at a given price level and in a given time period.</p> Signup and view all the answers

    What does the term 'Full Employment' refer to?

    <p>The condition where all individuals who are willing and able to work can find employment.</p> Signup and view all the answers

    What does the Consumer Price Index (CPI) measure?

    <p>Average change in prices paid by consumers</p> Signup and view all the answers

    _____ defines economic activities that are not reported or taxed by the government.

    <p>Underground Economy</p> Signup and view all the answers

    Study Notes

    Microeconomics

    • Microeconomics: Study of how consumers and businesses make economic decisions.
    • Demand: Quantity of a good or service that buyers will purchase at various prices during a given period.
      • Law of Demand: Quantity demanded varies inversely with price, ceteris paribus.
    • Supply: Quantity of a good or service that sellers will offer for sale at various prices during a given period.
      • Law of Supply: Quantity supplied increases if price increases, and decreases if price falls, ceteris paribus.
    • Market Equilibrium: Price at which the quantity demanded equals the quantity supplied.
    • Price Elasticity of Demand: Measure of how responsive the quantity demanded is to a change in price.
    • Price Elasticity of Supply: Measure of how responsive the quantity supplied is to a change in price.

    Consumer Behavior

    • Marginal Utility Theory: Consumers maximize satisfaction by equalizing the marginal utility of each product.
    • Consumer Equilibrium: State of satisfaction when the marginal utility per dollar is equal for all products.
    • Paradox of Value: Demand for necessities is not high enough to ensure prices match those of luxury items.

    Market Structures

    • Perfect Competition: Rare market structure where many sellers sell identical products, with no barriers to entry.
    • Dynamic Pricing: Practice of changing prices in response to changes in demand.
    • Monopoly: Market structure where one firm has complete control over supply.

    Labor Markets

    • Derived Demand: Demand for resources (e.g. labor) that is dependent on direct demand for goods and services.
    • Marginal Revenue Product of Labor: Additional revenue generated by adding one more worker.
    • Labor Demand Curve: Graphical representation of the relationship between labor demand and wage rate.
    • Labor Supply Curve: Graphical representation of the relationship between labor supply and wage rate.

    Production and Cost

    • Explicit Costs: Costs that appear on a business's accounting statements.
    • Implicit Costs: Costs not included in accounting statements, such as owner's time and invested capital.
    • Economic Profit: Excess of revenue over economic costs (explicit and implicit costs).

    Firms and Markets

    • Firm: Privately owned organization engaged in business activities.
    • Economies of Scale: Greater efficiency achieved by producing large quantities of output.
    • Regulation: Government rules that oversee, standardize, and control markets and industries.

    Business Organization

    • Sole Proprietorship: Business owned and operated by one person.
    • Partnership: Business owned by two or more people.
    • Corporation: Business firm recognized as a separate entity, with ownership divided into shares.
    • Co-operative: Business owned equally by its members, with a common goal.

    Macroeconomics

    • Macroeconomics: Study of the overall performance and structure of the economy.
    • Inflation: Rate at which the general level of prices for goods and services is rising.
    • Gross Domestic Product (GDP): Total value of all goods and services produced within a country's borders in a specific time period.### GDP and Economic Growth
    • Expenditure Approach: calculates GDP by summing consumption, investment, government spending, and net exports
    • Income Approach: calculates GDP by summing all incomes earned by individuals and businesses
    • GDP = C + G + I + (X - M)

    GDP Components

    • Consumption (C): total spending by households on goods and services
    • Investment (I): expenditure on capital goods, such as machinery and buildings
    • Government Spending (G): government expenditures on goods and services
    • Net Exports (X - M): exports minus imports

    Economic Indicators

    • GDP per Capita: GDP divided by population, indicating average economic output per person
    • Nominal GDP: total value of goods and services produced, not adjusted for inflation
    • Real GDP: GDP adjusted for inflation, providing a more accurate measure of economic output

    Unemployment

    • Unemployment Rate: percentage of labor force that is unemployed and actively seeking employment
    • Labor Force: total number of people employed or seeking employment
    • Types of Unemployment:
      • Structural Unemployment: skills or location of worker no longer matches labor demand
      • Technological Unemployment: more technology, less need for employers
      • Replacement Unemployment: cheaper labor
      • Geographical Unemployment: affects a region of a country
      • Frictional Unemployment: moving between jobs
      • Cyclical Unemployment: results in reduction of consumer spending
      • Seasonal Unemployment: caused by seasonal variation in jobs
      • Classical Unemployment: wages driven too high

    Aggregate Demand and Supply

    • Aggregate Demand (AD): total quantity of goods and services demanded by all households, firms, and government
    • Aggregate Supply (AS): total quantity of goods and services that producers are willing and able to supply
    • Full-Employment Equilibrium: point at which aggregate demand equals aggregate supply, resulting in stable employment levels

    Fiscal Policy

    • Expansionary Fiscal Policy: increasing government spending or reducing taxes to stimulate economic growth
    • Contractionary Fiscal Policy: decreasing government spending or increasing taxes to cool down an overheated economy
    • Automatic Stabilizers: features in the economy that automatically counteract economic fluctuations without direct government intervention
    • Discretionary Fiscal Policy: deliberate changes in government spending and taxation to achieve economic goals

    Money and Banking

    • Currency: physical forms of money, such as banknotes and coins
    • Money: a medium of exchange widely accepted in transactions, serving as a store of value and unit of account
    • Fractional Reserve Banking: system where banks keep only a fraction of deposits as reserves
    • Fiat Money: currency without intrinsic value, declared legal tender by a government

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    Learn how consumers and businesses make economic decisions, including demand, supply, and the law of demand.

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