Flashcards in BEC 3 - Microeconomics Deck (36):
What is the study of the allocation of scarce economic resources among alternative uses?
What is the difference between Micro- Macro- and International Economics?
Micro- Studies the economic activities of distinct decision-making entities, including individuals, households and business firms. Major areas of interest include demand and supply, prices and outputs, and the effects of external forces on the economic activities of these individual decision makers.
Macro- Studies the economic activities and outcomes of a group of entities taken together, typically of an entire nation or major sectors of a national economy. Major areas of interest include aggregate output, aggregate demand and supply, price and employment levels, national income, governmental policies and regulation, and international implications.
International- Studies economic activities that occur between nations and outcomes that result from these activities. Major areas of concern include socio-economic issues, balance of payments, exchange rates and transfer pricing.
What is the concept of ceteris paribus?
Any influence that other variables (other than the one shown on the graph) may have on the dependent variable is assumed to be held constant
When the dependent variable moves in the same direction as the independent variable, the graph would result in a ________ slope.
When the dependent variable moves in the opposite direction as the independent variable, the graph would result in a ________ slope.
When one variable does not change as the other variable changes, showing that the variables are not interdependent, the graph would result in a _______ slope.
Zero slope... neutral
What is the basic equation for a straight-line plot on a graph?
U = y + q(x)
U - Unknown value of the variable Y being determined
y - the value of the plotted line where it crosses the Y axis; the intercept - the value of Y where X=0
q - the value by which the value of Y changes as each unit of the X variable changes; expresses the slope of the line being plotted
x - the value (# of units) of the variable X.
Aka: Y = mx + b
What is the role of graphs in economics?
Graphs show the relationship between two variables, usually referred to as the independent and the dependent variables.
What determines "price"?
The supply of and demand for the commodity being priced.
List the characteristics of a free-market economy.
1. Interdependent relationship between individuals and business firms;
2.Production depends on preferences of individuals with ability to pay for goods and services;
3.Production depends on availability of economic resources, level of technology, and how business firms choose to use them;
4.Production depends on sale price being at least equal to production cost.
List the types of economic resources.
Acquired from individuals as: 1.Labor: human work, skills, and similar human effort;
2.Capital: financial resources (e.g., savings) and man-made resources;
3.Natural Resources: land, minerals, timber, water, etc.
Distinguish between a change in quantity demanded and a change in demand.
A change in quantity demanded is movement along a given demand curve as a result of change in price only. A change in demand is a shift in a demand curve as a result of changes in variables other than price.
What are the factors that change market demand?
Size of market;
Income or wealth of market participants;
Preferences of market participants;
Change in prices of other goods and services.
Desire, willingness and ability to acquire a commodity.
What are the variables that change aggregate supply?
Number of providers;
Cost of inputs;
Government taxation or subsidization;
Describe the principle of increasing cost.
Production costs increase in the short-run as the quantity produced increases, because new resources are not used as efficiently as the resources used previously .
Distinguish between a change in quantity supplied and a change in supply.
A change in quantity supplied is movement along a given supply curve as a result of change in price only. A change in supply is a shift of a supply curve as a result of changes in variables other than price.
Describe the results of a change in market supply (only) on equilibrium.
1. Increase in market supply = Supply curve shifts down and to the right; Decrease in market supply = Supply curve shifts up and to the left;
2. Increase in market supply w/no change in demand = Decrease in equilibrium price and increase in equilibrium quantity;
3. Decrease in market supply w/no change in demand = Increase in equilibrium price and a decrease in equilibrium quantity.
Describe the results of a change in market demand (only) on equilibrium.
1. Increase in market demand = Demand curve shifts up and to the right; Decrease in market demand = Demand curve shifts down and to the left;
2. Increase in market demand w/no change in supply = Increase in both equilibrium price and equilibrium quantity;
3. Decrease in market demand w/no change in supply = Decrease in both equilibrium price and equilibrium quantity.
Define Market Equilibrium
The equilibrium price for a commodity is the price at which the quantity of the commodity supplied in the market is equal to the quantity of the commodity demanded in the market. Graphically, it is the point where the market demand curve and the market supply curve intersect.
Measures the percentage change in a market factor (i.e. demand) seen as a result of a given percentage change in another market factor (i.e. price)
Define "elasticity of demand".
The percentage change in quantity of a commodity demanded as a result of a given percentage change in the price of the commodity.
Identify four measures of elasticity.
Elasticity of Demand;
Elasticity of Supply;
Income Elasticity of Demand;
Cross Elasticity of Demand.
What does "demand is elastic" mean?
If demand is elastic, the percentage change in demand is greater than the percentage change in price, the elasticity coefficient is greater than 1 and total revenue will change in the opposite direction as the change in price.
What are some of the factors that can affect the elasticity of demand for a good or service?
Availability of substitutes; extent of necessity; share of disposable income; post-change time period.
Define the "law of diminishing marginal utility".
Decreasing utility (satisfaction) is derived from each additional (marginal) unit of a commodity acquired.
Define "utility", as used in economics.
Satisfaction derived from the acquisition or use of a commodity.
Define "marginal utility".
The utility derived from each (additional) marginal unit (i.e., from the last unit acquired).
Define "utils", as used in economics.
Hypothetical unit of measure used to measure satisfaction derived from a commodity.
What is represented by an indifference curve?
Various quantities of two commodities that give an individual the same total utility as plotted on a graph.
As an individual acquires (or consumes) more units of a commodity over a given time period, what is the effect on the individual's total utility and marginal utility?
As an individual acquires or consumes more units of a commodity, the total satisfaction or utility derived increases with each unit; however, the additional (marginal) utility derived from each additional unit acquired or consumed decreases.
This is the basis of the law of diminishing utility and helps explain the negative slope of an individual's demand curve.
T/F: Utility is maximum when the marginal utility derived from the last dollar spent on each commodity is equal.
T/F: At points along an indifference curve, an individual would receive equal utility from any combination of the goods or services represented by the curve.
Define the "law of diminishing returns".
The point at which the quantity of variable inputs begins to overwhelm the fixed factors, resulting in inefficiencies and diminishing return on marginal units of variable inputs.
What are the three major kinds (types) of cost used in short-run economic analysis?
3. Total Cost = Total Fixed Cost + Total Variable Cost;
2. Average Cost = Cost per-unit of commodity produced;
1. Marginal Cost = Cost of the last acquired unit of an input.