Art App Introduction to Microeconomics PDF

**CHAPTER 1: Introduction to Microeconomics** **Scarcity** -means that society has limited resources **Economic** -study of how society manages its scarce resources. **Economist -**professional who studies economics and statistical data, as well as the production and distribution of resources, go...

**CHAPTER 1: Introduction to Microeconomics** **Scarcity** -means that society has limited resources **Economic** -study of how society manages its scarce resources. **Economist -**professional who studies economics and statistical data, as well as the production and distribution of resources, goods and services. -also study how people interact with one another. **Efficiency -**means that society is getting the maximum benefits from its scarce resources. **Equality -**means that those benefits are distributed uniformly among society's members. \*Making decisions requires trading off one goal against another. **Opportunity cost-**is what you give up to get the item. **Rational people** systematically and purposefully do the best they can do to achieve their objectives, given the available opportunities. I**ncentive** -something that induces a person to act. -are key to analyzing how markets work. **Trade -**allows for specialization,efficiency, lower prices, and access to a broader range of goods and services, ultimately making everyone involved better off. **Market economy -** decisions of a central planner are replaced by decisions of millions of firms and households. **Property rights -**the ability of an individual to own and exercise control over scarce resources **Market failure** -a situation in which a market left on its own fails to allocate resources efficiently. **Externality** -the impact of one person's actions on the well- being of a bystander. **Market power** -the ability of a single economic actor to have a substantial influence on market prices **Productivity -**the quantity of goods and services produced from each unit of labor input. **Inflation** -an increase in the overall level of prices in the economy **Business cycle** **fluctuations** -in economic activity, such as employment and production **CHAPTER 2: Supply and Demand Basics** **Supply** and **demand** are fundamental concepts in economics that describe how prices and quantities of goods and services are determined in a market. **The Law of Demand** is a fundamental principle in economics that describes the inverse relationship between the price of a good or service and the quantity demanded by consumers. **Demand -**refers to the quantity of a good or service that consumers are willing and able to purchase at various price. **Economic Conditions:** General economic conditions, such as recessions or booms, can influence overall demand. **Advertising and Marketing:** Effective advertising and marketing campaigns can increase consumer awareness and preference for a product, thereby boosting demand. **Government Policies and Regulations:** Taxes, subsidies, and regulations can affect demand. **The law of supply** is a fundamental concept in economics that describes the relationship between the price of a good and the quantity supplied by producers. **Supply** refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices. **Production Costs:** Changes in the costs of inputs (e.g., raw materials, labor) can impact supply. **Technology:** Improvements in technology can make production more efficient and increase supply. **Number of Producers:** An increase in the number of suppliers in the market generally leads to an increase in the total supply of a good **Government Policies:** Taxes, subsidies, and regulations can influence supply. **Expectations:** If producers expect prices to rise in the future, they might reduce current supply to sell more later at higher prices. **Natural Conditions:** For agricultural and natural resource- based products, weather conditions and other environmental factors can significantly affect supply **CHAPTER 3: Market Equilibrium and Efficiency** **Market equilibrium and efficiency** are central concepts in economics that describe how markets function and how resources are allocated. **Market equilibrium** occurs when the quantity demanded by consumers equals the quantity supplied by producers at a given price. **Equilibrium Price (Pₑ):** The price at which the amount of goods consumers want to buy is equal to the amount producers want to sell. **Equilibrium Quantity (Qₑ):** The quantity of goods that are bought and sold at the equilibrium price. **Surplus:** Occurs when the price is above the equilibrium price, leading to a situation where quantity supplied exceeds quantity demanded. **Shortage:** Occurs when the price is below the equilibrium price, leading to a situation where quantity demanded exceeds quantity supplied. **CHAPTER 4: Elasticity: Price, Income, and Cross Elasticity** **Elasticity** measures how much the quantity demanded or supplied of a good changes in response to changes in price, income, or the prices of related goods. **Types of Elasticity** **Price Elasticity of Demand (PED)-** measures how the quantity demanded of a good or service responds to changes in its price. **Income Elasticity of Demand (YED)-** measures how the quantity demanded of a good or service responds to changes in consumers\' income. **Cross Elasticity of Demand (XED)-** measures how the quantity demanded of one good changes in response to a change in the price of another good. It helps to understand the relationship between two products, whether they are substitutes, complements, or unrelated. **1. Normal Goods (YED \> 0):** Goods for which demand increases as consumer income rises. They have a positive income elasticity of demand. Demand increases as income rises. **Necessities (0 \< YED \< 1):** Demand for necessities increases with income but at a slower rate. **Luxuries (YED \> 1):** Demand for luxury goods increases more than proportionately as income rises. **2. Inferior Goods (YED \< 0):** Goods for which demand decreases as consumer income rises. They have a negative income elasticity of demand. **Subtitute Goods (XED\>0):** products that can be used in place of each other. **Complementary Goods (XED \< 0):** Complementary goods are products that are used together. **Unrelated Goods (XED = 0):** Unrelated goods have no significant relationship with each other. **CHAPTER 5: Consumer Behavior and Utility Maximization** **Consumer behavior** refers to the decision-making processes individuals use when selecting, purchasing, and using goods and services. **Rationality**: Consumers aim to maximize satisfaction (utility) given their income. **Utility**: A measure of satisfaction or pleasure derived from consuming goods or services. **Preferences**: Consumers have ranked preferences for goods and services. **1. Total Utility (TU)-** The overall satisfaction a consumer derives from consuming a certain quantity of goods or services. **2. Marginal Utility (MU)-** The additional satisfaction a consumer gets from consuming one more unit of a good or service. **3. Average Utility-** The total utility divided by the number of units consumed, representing the average satisfaction per unit. **4. Cardinal Utility-** Assumes that utility can be measured quantitatively (e.g., in \"utils\") and compared numerically. **5. Ordinal Utility-** Assumes that consumers cannot measure utility in exact numbers, but they can rank preferences. **Chapter 6: Production and Cost\ Understanding Production, Costs, and Efficiency**\ **Production** refers to the process of transforming inputs into outputs. **Law of Diminishing Returns:** -describes how increasing the quantity of one input, while keeping others constant, will eventually result in smaller increases in output. -As additional units of a variable input are added to fixed inputs, the marginal product eventually declines. **Land-** refers to all natural resources used in the production process. It includes not just the ground, but all resources that come from the earth. -Land is a passive factor, meaning it does not change through use. -income derived from land is called rent. -Natural resources can be renewable (like forests) or non-renewable (like oil). **Labor -** is the human effort -- both physical and mental -- used in the production of goods and services. -can be skilled or unskilled, and the value of labor depends on the skill level. -The reward for labor is wages or salaries. -Human capital (the skills, education, and training of workers) plays a crucial role in productivity. -refers to the tools, equipment, machinery, and buildings **Capital-** used in the production of goods and services. \- is a man-made resource that increases the productivity of labor. -The reward for the use of capital is interest. **Physical Capital:** Tangible assets like machinery and buildings. **Human Capital:** Skills and knowledge acquired by workers. **Entrepreneurship-**the ability to organize the other factors of production -- land, labor, and capital -- to produce goods and services. -Entrepreneurs take on risks and innovate to create new products and services. -The reward for entrepreneurship is profit. -Entrepreneurs play a key role in economic growth and innovation by combining resources effectively. **Short run -**is a period during which at least one input is fixed, typically capital (machinery, buildings), while other inputs like labor can be varied. **Fixed Inputs:** These are resources that cannot be changed quickly (e.g., factory size, machinery). **Variable Inputs:** These are inputs that can be adjusted in the short run (e.g., labor, raw materials). **The Law of Diminishing Marginal Returns often applies in the short run:** as more units of a variable input (like labor) are added to a fixed input, the additional output produced by each new unit will eventually decrease. **Fixed Costs (FC):** Costs that do not change with the level of output (e.g., rent, salaries of permanent staff). **Variable Costs (VC):** Costs that vary with output (e.g., wages for temporary workers, raw materials). **Total Cost (TC):** The sum of fixed and variable costs. **Marginal Cost (MC):** The additional cost of producing one more unit. **Graphical Representation:** Short-run cost curves, including Average Total Cost (ATC), Average Variable Cost (AVC), and Marginal Cost (MC), can be used to show how costs behave as output changes. **Long run production-** is the time period during which all inputs can be varied, allowing firms to fully adjust their production processes. -there are **no fixed costs**; all costs become variable as firms can adjust all inputs. **Long-run Average Cost (LRAC**) curve shows the lowest possible cost at which any output level can be produced when all inputs are variable. **Economies of Scale:** As production increases, average costs per unit fall due to factors like bulk purchasing, specialization, and technological efficiency. **Diseconomies of Scale:** After a certain point, increasing production can lead to inefficiencies, such as coordination difficulties or overburdened resources, resulting in higher average costs. The **LRAC curve** is typically U-shaped, representing economies of scale at lower production levels and diseconomies of scale at higher levels.