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Questions and Answers
Questions and Answers
What is microeconomics?
What is microeconomics?
The part of economics concerned with single factors and the effects of individual decisions. The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.
Which of the following are considered the four market structures?
Which of the following are considered the four market structures?
- Perfect Competition (correct)
- Oligopoly (correct)
- Monopoly (correct)
- Monopolistic Competition (correct)
What characterizes perfect competition?
What characterizes perfect competition?
Many competitors selling identical products with no barriers to entry.
What is a price taker?
What is a price taker?
What is a price maker?
What is a price maker?
What is opportunity cost?
What is opportunity cost?
What does the production possibilities frontier (PPF) represent?
What does the production possibilities frontier (PPF) represent?
What is a commodity?
What is a commodity?
What fundamental economic problem does scarcity represent?
What fundamental economic problem does scarcity represent?
What are consumer goods?
What are consumer goods?
What are capital goods?
What are capital goods?
The law of demand states that there is an inverse relationship between price and _____
The law of demand states that there is an inverse relationship between price and _____
What does elasticity measure?
What does elasticity measure?
What is inelastic demand?
What is inelastic demand?
What does the elasticity of demand coefficient represent?
What does the elasticity of demand coefficient represent?
What does unit elastic mean?
What does unit elastic mean?
What is marginal benefit?
What is marginal benefit?
What is marginal cost?
What is marginal cost?
What does absolute advantage refer to?
What does absolute advantage refer to?
What does comparative advantage mean?
What does comparative advantage mean?
What is the law of diminishing marginal returns?
What is the law of diminishing marginal returns?
What is price elasticity?
What is price elasticity?
Questions and Answers
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Flashcards
Flashcards
Microeconomics
Microeconomics
The study of individual economic decisions and interactions.
Perfect Competition
Perfect Competition
Many firms, identical products, easy entry/exit.
Monopoly
Monopoly
One firm, dominates the market, sets prices.
Monopolistic Competition
Monopolistic Competition
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Oligopoly
Oligopoly
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Price Taker
Price Taker
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Price Maker
Price Maker
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Opportunity Cost
Opportunity Cost
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Production Possibilities Frontier (PPF)
Production Possibilities Frontier (PPF)
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Commodities
Commodities
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Scarcity
Scarcity
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Consumer Goods
Consumer Goods
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Capital Goods
Capital Goods
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Elasticity
Elasticity
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Marginal Benefit
Marginal Benefit
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Marginal Cost
Marginal Cost
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Absolute Advantage
Absolute Advantage
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Comparative Advantage
Comparative Advantage
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Allocative Efficiency
Allocative Efficiency
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Capital
Capital
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Flashcards
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Study Notes
Study Notes
Microeconomics Overview
- Microeconomics studies individual economic decisions and interactions among households, firms, and markets, as well as government influences.
Market Structures
- Four primary market structures:
- Perfect Competition: Many firms sell identical products, easy market entry and exit.
- Monopoly: Single firm dominates, setting prices.
- Monopolistic Competition: Many firms sell similar but differentiated products.
- Oligopoly: A few firms dominate the market, often with interdependent pricing.
Perfect Competition
- Characterized by numerous competitors and identical products.
- Firms act as price takers, unable to set prices independently.
- Results in efficient resource allocation and a perfectly elastic demand curve.
Price Taker vs. Price Maker
- Price Taker: Firms in perfect competition accept market prices.
- Price Maker: Monopolies can set prices anywhere along the demand curve.
Opportunity Cost
- Represents the potential benefits foregone when choosing one option over another.
Production Possibilities Frontier (PPF)
- A curve showing maximum possible outputs for two goods, indicating efficiency, scarcity, and trade-offs.
- The PPF can shift due to changes in resource quantity/quality or technological advancements.
Commodities
- Basic goods traded interchangeably in commerce, such as oil or gold.
Scarcity
- The fundamental economic issue arising from unlimited wants and limited resources.
Consumer vs. Capital Goods
- Consumer Goods: Products intended for direct consumption.
- Capital Goods: Products used to produce consumer goods.
Elasticity
- Measures how demand changes in response to price changes.
- Inelastic Demand: Quantity demanded is relatively insensitive to price changes (e.g., gas).
- Elastic Demand: Quantity demanded significantly changes with price (e.g., luxury items).
- Unit Elastic: Equal percentage change in quantity and price.
Demand Curves
- Perfectly Inelastic: Vertical curve, coefficient of 0.
- Relatively Inelastic: Slightly inclined, coefficient < 1.
- Unit Elastic: 45° angle, coefficient = 1.
- Relatively Elastic: Almost horizontal, coefficient > 1.
- Perfectly Elastic: Horizontal curve, coefficient ∞.
Economic Analysis Method
- Economic models are built using scientific approaches to identify issues and variables of interest.
Allocative Efficiency
- Occurs when resources are distributed such that consumer satisfaction is maximized.
Marginal Concepts
- Marginal Benefit: Maximum price a consumer is willing to pay for one more unit.
- Marginal Cost: Cost incurred from producing one more unit.
- Marginal Analysis: Evaluates additional benefits versus costs for decision-making.
Absolute vs. Comparative Advantage
- Absolute Advantage: Ability to produce more efficiently than another producer.
- Comparative Advantage: Ability to produce at a lower opportunity cost.
Terms of Trade
- Established when countries specialize in the production of goods and agree on a trade ratio that benefits both.
The Law of Diminishing Marginal Returns
- States that adding workers can lead to less output per worker after a certain point due to limited resources.
Price Elasticity
- A key metric assessing how demand or supply responds to price fluctuations.
Capital
- Wealth or assets available for investment or entrepreneurial activities.
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