Microeconomics Overview

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Questions and Answers

What is the relationship between the price of a good and the quantity supplied?

The quantity supplied remains constant regardless of the price of the good.

The quantity supplied rises when the price of the good falls.

The quantity supplied falls when the price of the good falls.

The quantity supplied rises when the price of the good rises. (correct)

Which of the following is an example of a change in input prices that would shift the supply curve to the left?

A decrease in the price of raw materials.

An increase in the price of labor. (correct)

An improvement in technology that reduces production costs.

An increase in the demand for the good.

An increase in the number of sellers in the market.

How does an increase in the number of sellers affect the supply curve?

It does not affect the supply curve.

It shifts the supply curve to the right. (correct)

It shifts the supply curve to the left.

It causes the supply curve to become steeper.

Which of the following factors could affect both supply and demand?

Changes in expectations. (C) Signup and view all the answers

How does a cost-saving technological improvement affect the supply curve?

It shifts the supply curve to the right. (B) Signup and view all the answers

If there is a decrease in the price of computers, what will likely happen to the demand for software?

Demand for software will increase due to the decrease in computer prices. (A) Signup and view all the answers

What might cause a rightward shift in the demand curve for a specific brand of cereal?

A successful advertising campaign highlighting the health benefits of the cereal. (D) Signup and view all the answers

If the government imposes a new tax on the production of soda, what is the likely impact on the supply of soda?

The supply of soda will decrease as producers face higher production costs. (C) Signup and view all the answers

The price of a certain brand of athletic shoes decreases significantly. What is the most likely explanation for this price decrease?

All of the above factors could influence the price decrease. (D) Signup and view all the answers

During a major sporting event, the demand for tailgate products, like coolers and paper plates, typically increases. What is the most likely reason for this increase?

Sporting events usually create a surge in demand for these goods. (C) Signup and view all the answers

If a new health study highlights the negative health effects of a popular energy drink, what is the likely impact on the demand for this drink?

Demand for the energy drink would decrease as people become more health-conscious. (D) Signup and view all the answers

If the price of a popular brand of coffee increases significantly, what is the likely impact on the demand for a competing brand of coffee?

Demand for the competing brand will likely increase as people look for substitutes. (D) Signup and view all the answers

If the government provides tax breaks or subsidies to manufacturers of electric vehicles, what is the likely impact on the supply of electric vehicles?

Supply will likely increase as manufacturers are incentivized to produce more vehicles. (D) Signup and view all the answers

If the price of a good increases, what happens to the quantity demanded of that good, according to the law of demand?

The quantity demanded of a good decreases. (A) Signup and view all the answers

What is the difference between a change in quantity demanded and a change in demand?

A change in quantity demanded is caused by a change in price, while a change in demand is caused by a change in non-price factors. (D) Signup and view all the answers

Which of the following would cause a shift in the demand curve for video games?

An increase in the number of gamers. (D) Signup and view all the answers

What is the relationship between the demand curve and the demand schedule?

The demand curve is a graphical representation of the information in the demand schedule. (B) Signup and view all the answers

If the quantity demanded of a good decreases as the price increases, what is this relationship called?

The law of demand. (B) Signup and view all the answers

Which of the following would be considered a non-price determinant of demand?

The income of consumers. (C) Signup and view all the answers

Why is the quantity demanded of a good different from the demand for a good?

The quantity demanded is a point on the demand curve, while demand is the entire demand curve. (D) Signup and view all the answers

What is the relationship between the demand for a good and the supply of that good?

The demand for a good and the supply of that good are related, but not directly or inversely proportional. (A) Signup and view all the answers

Study Notes

Microeconomics Notes

Scarcity: Society's resources are limited
Economics: The study of how society manages scarce resources
Decisions: How individuals decide what to buy, how much to work, save, and spend
Firms: How firms decide how much to produce and hire workers
Tradeoffs: All decisions involve tradeoffs
- Examples: Spending time at a party vs. studying; more money vs. leisure time
Efficiency: When society gets the most from its scarce resources
Equality: When prosperity is distributed uniformly among members of society
Tradeoff: Achieving greater equality often leads to reduced incentive to work and produce, thus potentially shrinking the size of the economic pie.
Opportunity Cost: The cost of something is what you give up to get it. It is the relevant cost for decision-making
- Example: The cost of going to college for a year is tuition, fees, and other costs but also includes what you would do instead, like work and earn money.
Rational People: People act systematically and purposefully to achieve objectives with marginal changes or adjustments
- Example: A manager will evaluate incremental adjustments to output.
Incentives: Something that induces a person to act, like a reward or punishment. Rational individuals respond to incentives.

Chapter 2

Model: A simplified representation of reality
Circular-Flow Diagram: A visual model illustrating how dollars flow through markets between households and firms
- Markets:
  - Goods & services
  - Factors of production
- Households: Individuals that buy goods and services, and provide labor, land, capital, and entrepreneurship.
- Firms: Individuals that buy factors of production, and produce goods and services.
Production Possibilities Frontier (PPF): A graph showcasing possible combinations of two goods that an economy can produce, given resources and technology.
Tradeoffs: Moving along the PPF involves shifting resources
Bow-shaped PPF: Occurs when the opportunity cost of producing one good increases as more of it is produced.
Straight-line PPF: Occurs when the opportunity cost of producing one good remains constant.
Efficiency: Points on the PPF itself represent efficient production levels where it is impossible to produce more of one good without producing less of the other.

Chapter 3

Comparative Advantage: The ability to produce a good at a lower opportunity cost than another producer.
Absolute Advantage:The ability to produce a good using fewer inputs than another producer.
Specialization: Individuals and countries should specialize in producing goods and services for which they have a comparative advantage, leading to gains from trade.

Chapter 4

Demand: The quantity demanded (QD) of a good is the amount that buyers are willing and able to purchase at a given price
Demand Curve: Shows the relationship between price and quantity demanded.
Law of Demand: Inverse relationship between price and quantity demanded. (Higher prices lower quantity demanded)
Demand Curve Shifters: Factors other than price that shift the entire demand curve (e.g. tastes, income, expectations, prices of related goods, number of buyers)
- Normal Good: Demand increases with income.
- Inferior Good: Demand decreases with income.

Chapter 4 (Supply)

Supply: The quantity supplied (QS) of a good is the amount that sellers are willing and able to sell at a given price.
Supply Curve: Shows the relationship between price and quantity supplied.
Law of Supply: Positive relationship between price and quantity supplied (Higher prices lead to higher quantity supplied).
Supply Curve Shifters: Factors other than price that shift the entire supply curve (e.g. input prices, technology, expectations of future prices, number of sellers).

Chapter Summary

Equilibrium: The point where the supply and demand curves intersect
Surplus: When quantity supplied is greater than quantity demanded
Shortage: When quantity demanded is greater than quantity supplied
Changes in Supply and Demand: Shifts in the curves versus movement along the curve

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Description

This quiz covers fundamental concepts in microeconomics, including scarcity, opportunity cost, efficiency, and equity. It explores how individuals and firms make decisions regarding resource allocation. Test your understanding of these key principles and their implications on economic behavior.