Microeconomics Flashcards

1
Q

Opportunity cost

A

The next best alternative lost when an economic decision is made

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2
Q

Basic economic problem

A

Infinite wants and finite resources
-What to produce?
-How to produce?
-For whom to produce?

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3
Q

Factors of production

A

Land
Labour
Capital
Enterprise

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4
Q

PPC

A

shows the maximum combination of two types of goods that can be produced in a given time period in an economy

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5
Q

Assumptions we make about PPCs (3)

A

-The economy only produces 2 goods
-Resources and state of technology are fixed
-All resources are fully employed

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6
Q

Why is the PPC concave

A

Opportunity cost is not constant, since not all factors of production are equally suitable

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7
Q

Assumptions of the circular flow of income model (2)

A

-Households are the owners of all factors of production
-Households buy all the nation’s output

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8
Q

Leakages in the circular flow of income model (3)

A

-Taxes
-Saving
-Imports

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9
Q

Injections in the circular flow of income model (3)

A

-Government spending
-Investment
-Exports

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10
Q

Free market economy

A

all production is in private hands and demand and supply are left free to set prices and wages

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11
Q

Planned economy

A

all production decisions are made by the government

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12
Q

Market

A

where buyers and sellers come together to carry out an economic transaction

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13
Q

Demand

A

the quantity of a good that consumers are willing and able to purchase at a given price at a given time

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14
Q

Law of Demand

A

as price increases quantity demanded falls, and as price decreases quantity demanded increases

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15
Q

Non-price determinants of demand (11)

A

Population
Advertising
Substitutes
Income
Fashion/Tastes
Interest Rates
Complements
Seasons
Expectations for price change
Demographics

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16
Q

Income effect

A

when a price of a product falls, “real income” increases, so more people will buy the product

17
Q

Substitution effect

A

people recieve a certain “utility” when consuming a product, which is increased when price decreases as marginal utility increases

18
Q

Types of cognitive biases

A

Availability, Anchoring, Herb behaviour, Inertia bias, Loss aversion, Hyperbolic discounting

19
Q

Availability bias

A

The availability of recent information and examples

20
Q

Anchoring bias

A

When we are given the value of something, which is used as a reference point to influence future choices

21
Q

Framing bias

A

The way that information is presented to us

22
Q

Herd behaviour/Social conformity

A

The way that others behave can exert a powerful influence on our own choices

23
Q

Status Quo/Inertia bias

A

When consumers are faced with a “bewildering” set of choices, most would choose to do nothing

24
Q

Loss aversion bias

A

Humans feel losses are far more significant that gains

25
Q

Hyperbolic discounting

A

Humans that prefer smaller short term rewards than larger long-term rewards

26
Q

Nudge theory

A

The theory that everyone’s choices are slightly “nudged” to choose a different option

27
Q

What is PED

A

measure for how much the demand for a product changes when there in a change in price

28
Q

formula for PED

A

%ΔQd / %ΔP

29
Q

Types of elasticity

A

Elastic
Inelastic
Unitary Elastic
Perfectly Elastic
Perfectly Inelastic

30
Q

Values for PED

A

PED=0– Perfectly Inelastic
0<PED<1– Inelastic
PED=1– Unitary Elastic
1<PED<∞– Elastic
PED=∞– Perfectly Elastic

31
Q

Effect on TR from Elasticity

A

TR increases when price increases and the product is inelastic, or price decreases and the product is elastic

32
Q

different values for PED on the same line

A

the further up you go on a demand curve (linear), the higher the more elastic as proportion of income increases

33
Q

Determinants of PED (4)

A

-Number and closeness of substitutes
-Necessity of the product
-Proportion of income spent
-The time period considered

34
Q
A