Microeconomics Overview
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Questions and Answers

What does microeconomics primarily focus on?

  • The historical trends in national economies
  • The economic policies of governments
  • The economy as a whole
  • The behaviour of individuals and companies (correct)

Which of the following statements is true about positive economics?

  • It is primarily concerned with subjective opinions.
  • It focuses on objective and verifiable statements. (correct)
  • It deals with what the economy should be.
  • It cannot be tested or verified.

Which term describes the economic activities at the level of households and individual companies?

  • Positive economy
  • Macro-economy
  • Micro-economy (correct)
  • Normative economy

How is the economy defined?

<p>As the management of a country’s wealth and resources (D)</p> Signup and view all the answers

What best describes normative economics?

<p>It deals with what the economy should be like. (C)</p> Signup and view all the answers

What represents the interconnected activities within a national economy?

<p>Macro-economy (A)</p> Signup and view all the answers

Which of the following is not considered a component of the economy?

<p>Corporate governance (C)</p> Signup and view all the answers

What does the law of demand indicate about the relationship between price and quantity demanded?

<p>Higher prices lead to lower quantity demanded. (D)</p> Signup and view all the answers

What happens to the demand curve when there is an increase in demand?

<p>The demand curve shifts to the right. (C)</p> Signup and view all the answers

In the context of the demand schedule, what does a quantity demanded of 15 at a price of $200 indicate?

<p>15 cups of rice are purchased per week at that price. (B)</p> Signup and view all the answers

Which statement best describes the market mechanism?

<p>It facilitates the interaction of buyers and sellers to establish prices. (B)</p> Signup and view all the answers

What is reflected by a downward slope in the demand curve?

<p>Both A and B are correct. (B)</p> Signup and view all the answers

Which of the following best describes capital in the context of factors of production?

<p>Human-made resources used to produce other goods (A)</p> Signup and view all the answers

What is meant by 'land' in the context of factors of production?

<p>The natural resources used to produce goods and services (D)</p> Signup and view all the answers

Which of the following is NOT a factor of production?

<p>A finished product (A)</p> Signup and view all the answers

In terms of production, what does 'labour' refer to?

<p>The effort that people devote to a task (C)</p> Signup and view all the answers

What type of production involves the creation of custom furniture?

<p>Job production (B)</p> Signup and view all the answers

Which term describes the economic limitation of resources in meeting unlimited wants?

<p>Scarcity (D)</p> Signup and view all the answers

Which of the following would be considered an example of physical capital?

<p>A machine used in production (C)</p> Signup and view all the answers

What type of production is most characterized by creating identical products in large quantities?

<p>Flow production (A)</p> Signup and view all the answers

What does the term 'human capital' refer to in the context of factors of production?

<p>The knowledge and skills acquired by workers (B)</p> Signup and view all the answers

What is primarily controlled by the government in a command economy?

<p>The choice of goods available to consumers (C)</p> Signup and view all the answers

Which aspect of a market economy allows consumers to influence production decisions?

<p>Supply and demand dynamics (A)</p> Signup and view all the answers

What significant downside is associated with a market economic system?

<p>Inequitable resource distribution (B)</p> Signup and view all the answers

In a market economy, who primarily decides how to produce goods?

<p>Company executives (D)</p> Signup and view all the answers

Which of the following best describes the role of the government in a market economy?

<p>Protecting consumers and companies (D)</p> Signup and view all the answers

How are prices typically determined in a command economy?

<p>By government regulations (D)</p> Signup and view all the answers

Why might companies in a market economy produce more expensive products?

<p>To maximize profits from high-income consumers (C)</p> Signup and view all the answers

What is a common characteristic of a market economic system?

<p>Free markets with minimal regulation (B)</p> Signup and view all the answers

What is a key factor that influences how much of a good is produced in a market economy?

<p>Consumer demand (B)</p> Signup and view all the answers

Which challenge arises from producers creating unwanted goods in a market economy?

<p>Potential for financial loss (B)</p> Signup and view all the answers

How can legislation help manage market failures?

<p>By imposing penalties for behaviors considered harmful. (C)</p> Signup and view all the answers

What is one effect of using the price mechanism to address harmful products?

<p>It raises taxes to discourage consumption. (D)</p> Signup and view all the answers

Which of the following is NOT a goal of households in the market?

<p>To invest in production factors for profit. (A)</p> Signup and view all the answers

What makes governments unique as market subjects?

<p>They are responsible for making and adopting laws. (B)</p> Signup and view all the answers

What is the primary function of the market mechanism?

<p>To allocate resources through buyer-seller interactions. (D)</p> Signup and view all the answers

Which process is involved in generating demand in the market?

<p>Demand creation. (A)</p> Signup and view all the answers

Which of the following statements about market subjects is false?

<p>All market subjects operate solely for profit. (D)</p> Signup and view all the answers

What is a common method governments use to control consumption of harmful products?

<p>Implementing taxes on those products. (B)</p> Signup and view all the answers

What characterizes the non-excludable definition in economic terms?

<p>A good that cannot be withheld from someone who wants to use it. (D)</p> Signup and view all the answers

What does the price discovery process focus on?

<p>Determining the fair value of goods through market interactions. (A)</p> Signup and view all the answers

Flashcards

Microeconomics

A branch of economics focusing on individual and company decisions regarding the allocation of scarce resources and their interactions.

Macroeconomics

A branch of economics studying the overall performance, structure, and decision-making of an entire economy.

Positive Economics

Statements about the world that can be tested and verified, focusing on what is rather than what should be.

Normative Economics

Statements about what the economy should be, focusing on values and opinions rather than factual evidence.

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Economy

A system that encompasses the production, use, and management of resources within a specific context.

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Macro-economy

Economic activity within a national economy, involving interactions among different market subjects and their impact on the overall economy.

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Micro-economy

Economic activity of individual market subjects, focusing on how households, companies, and other entities make decisions and interact within the economy.

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Factors of Production

The resources used to create goods and services, including natural resources, labor, and human-made assets.

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Land (Factor of Production)

Anything found in nature used to produce goods or services, like land, water, or minerals.

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Labor (Factor of Production)

The work and effort put towards creating goods or services. It's paid work involving physical and mental effort.

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Physical Capital (Factor of Production)

Human-made tools, equipment, machines, and buildings used to produce other goods and services.

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Human Capital (Factor of Production)

The knowledge, skills, and experience that workers gain through education and training.

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Financial Capital (Factor of Production)

Money used to purchase physical capital and human capital. It's the financial resource used to invest in production.

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Elementary Factors of Production

Fundamental inputs essential for the production process. This includes workforce, assets, and other basic resources.

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Derived Factors of Production

Inputs providing control and management over the company's production processes. These include executives and managers.

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Command Economy

An economic system where the government controls all aspects of the economy, including production, distribution, and pricing of goods. Consumers have limited choices and rely on the government for resource allocation.

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Market Economy

An economic system where individuals and businesses freely make decisions about production and consumption. The government plays a minimal role, focusing on protecting fair trade and preventing monopolies.

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Consumer Choice

The ability of consumers in a market economy to select their desired goods and services. Producers adjust production based on consumer demand.

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Government Control in a Command Economy

The government's role in a command economy to manage and regulate the allocation of resources, production processes, and employment.

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Government Role in a Market Economy

The role of the government in a market economy to ensure fair competition and protect consumers from harm or unfair practices.

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Production Based on Demand

The principle that goods are produced based on what consumers want and are willing to pay for. Companies must respond to demand to survive.

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How To Produce in a Market Economy

The process of finding the most efficient and cost-effective methods to produce goods in a market economy, guided by the goal of maximizing profits.

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Who To Produce For in a Market Economy

Companies that produce goods and services in a market economy target their production towards those who can afford to buy them. This might lead to a higher number of expensive products due to income disparities.

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Unequal Distribution of Resources in a Market Economy

A situation in a market economy where a few individuals or companies control a large share of resources, leading to unequal distribution of wealth and limited access for the majority.

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Theoretical Nature of Market Economy

The concept that a pure market economy, with no government intervention, is impossible. All economic systems require some degree of regulation.

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Demand

The quantity of a good or service that buyers are willing and able to purchase at a specific price.

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Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded at each price.

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Law of Demand

The principle that states as the price of a good increases, the quantity demanded of the good decreases, and vice versa.

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Increase in Demand

A shift in the demand curve to the right, indicating an increase in demand at any given price.

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Decrease in Demand

A shift in the demand curve to the left, indicating a decrease in demand at any given price.

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Market Failure Solutions

Government interventions like regulations or taxes designed to correct negative consequences of market behavior.

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Externality

A side effect or consequence of an action that affects someone not directly involved in the transaction.

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Non-rivalrous Good

A good that can be consumed by multiple people without reducing its availability to others.

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Non-excludable Good

A good that is difficult or impossible to prevent people from accessing, even if they don't pay for it.

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Collusion

Producers working together secretly to set prices and reduce competition.

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Market Subjects

Entities participating in market exchanges, buying and selling goods, services, or factors of production.

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Household Goals

The primary goal of households is to acquire goods and services by spending income and selling factors of production like labor.

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Company Goals

The primary goal of companies is to purchase factors of production (like labor and resources) to produce goods and services, which they then sell.

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Market Mechanism

The process by which buyers and sellers interact, determining prices and quantities of goods and services.

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Price Discovery

The process of determining the price of a good or service through the interaction of buyers and sellers.

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Study Notes

Economics and Economy

  • Economics is the study of how individuals, companies, and societies use limited resources to satisfy unlimited wants.
  • Economics analyzes individual and corporate behavior, as well as social and political institutions.
  • Economics is split into two realms: microeconomics and macroeconomics.
  • Microeconomics studies individual and firm behavior.
  • Macroeconomics studies the economy as a whole.
  • Economics is also divided into positive and normative economics.
  • Positive economics describes what is and can be tested.
  • Normative economics describes what ought to be and cannot be tested.

Economy

  • The economy is a social domain focusing on resources, production, use, and management.
  • Examples of economies include company economies, household economies, national economies, and economies as trade or production.

Scarcity

  • Scarcity is an economic concept where available resources are limited but wants are unlimited.
  • Scarcity affects the value individuals place on goods and services because it determines price.
  • Scarcity is everything people desire whether achieved effortlessly or not.

Satisfying needs

  • Needs are a feeling of lack of something. They are often innate or learned.
  • Wants are desires that are not essential for survival.

Types of Needs

  • Basic needs are related to biological necessities (eating, sleeping).
  • Higher needs include luxury items, cultural enrichment, and social elements.
  • Needs can be individual or collective.
  • Physical, mental, and social needs are three types of related needs

Means of Satisfying Needs

  • Goods are physical products (material objects)
  • Services are actions performed for others.

Factors of Production

  • Land refers to natural resources
  • Labor is human effort
  • Capital is human-made resources including physical capital and financial capital.

Economic Decisions

  • Economic decision-making involves weighing costs and benefits of different choices.
  • The scale of preferences is a prioritized list based on importance and means of achieving wants.
  • Rational behavior is decision-making based on a list of priorities while irrational behavior is impulsive.
  • Opportunity cost is the value forgone in choosing a certain option instead of another.

Production

  • Production converts inputs (raw materials, knowledge, unfinished goods) into outputs (finished goods and services).
  • Production processes and methods affect economic performance and value creation.

Types of Production

  • Flow production produces standardized items on assembly lines.
  • Batch production manufactures groups of items together.
  • Job production creates customized items individually.

Economic Systems

  • Economic systems organize resource allocation.
  • Types of economic systems include traditional, command, market, and mixed economies.
  • Traditional economies rely on established trends.
  • Command economies are centrally planned by a government.
  • Market economies rely on supply and demand with minimal government intervention.
  • Mixed economies combine market and command principles, emphasizing the role of government regulation.

Market and Market Mechanism

  • Market is a place where buyers and sellers interact to exchange goods and services.
  • Market conditions include a commodity being exchanged, a single price, and no need for physical interaction.
  • Market functions include providing information about production, buyers and sellers and distribution of income.
  • Markets can be categorized based on their territory (local, national, international, world). Markets can be categorized based on their subject matter (goods and services, factors of production, finances). Markets can be classified based on their legal nature (legal, illegal).
  • Supply and demand are fundamental economic concepts influencing price and quantity in a market.

Market Failures

  • Market failures occur when the market fails to efficiently allocate resources.
  • Externalities are side effects of transactions that affect unrelated third parties. Public goods are consumed by all and allocated efficiently at zero cost while non-excludable public goods cannot exclude non-payers.

Market Control

  • Market control happens when one party (buyer or seller) has the power to set prices.
  • Imperfect information on either side can cause market failure.

Market Subjects

  • Households consume and sell factors of production in the market.
  • Companies produce goods and services within the market.
  • Governments regulate and provide services in the economy.

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Description

This quiz tests your understanding of key concepts in microeconomics, including positive and normative economics, and the roles of households and firms in the economy. Explore definitions and components of economic activities at a national level. Perfect for students looking to reinforce their knowledge in this subject.

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