Chapter 1 Flashcards
(25 cards)
Microeconomics
Branch of economics that deals with the behaviour of individual economic units: consumer, firms, workers and investors as well as the market that these units comprise.
Macro economics
Branch of economics that deals with aggregate economic variables such as the level and growth rate of national output, interest rates, unemployment and inflation.
Who makes trade offs?
Consumers, Workers, Firms,
Markets
Collections of buyers and sellers that together determine the price of a good.
Economics is concerned with:
Explanations of observed phenomena.
Theory of the firm
Simple assumption that firms try to maximize their profits. The theory uses this assumption to explain how firms choose the amounts of labor, capital, and raw materials that they use for production and the amount of output they produce.
Economic Model
Mathematical rep based on economic theory of a firm, a market or some other entity.
Ex. We may develop a model of a firm and use it to predict by “how much” the firm’s output level will change as a result of say a drop in price of inputs.
Positive Analysis
Analysis describing relationships of cause and effect
They deal with questions concerning with explanation and prediction.
Normative Analysis
Analysis examining questions of what ought to be. Or “what is best?”
Market
Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products.
Market definition
Determination of the buyers, sellers and range of products that should be included in a particular market. Where “potential” interactions of buyers and sellers can be just as important as actual ones.
Industry
Collection of firms that sell the same or closely related products.
Arbitrage
Practice of buying at a low price at one location and selling at a higher price in another.
Perfectly competitive market
Market with many buyers and sellers, so that no single buyer or seller has a significant impact on price.
Market Price
Price prevailing in a competitive market.
Extent of a market
Boundaries of a market, both geographical and in terms of range of products produced and sold within it.
Market definition is important for two reasons:
- A company must understand who its actual and potential competitors are for the various products that sells it or might sell in the future. It must also know the product boundaries and ge boundaries of its market in order to set price.
- Mkt definition can be important for public policy decisions. Should the gov allow a merger or acquisition involving companies that produce similar products, or should it challenge it? Answer depends on impact of that merger on future competition and prices. Often this can be evaluated only by defining a market.
Nominal Price
Absolute price of a good, unadjusted for inflation.
Real Price
Price of a good relative to an aggregate measure of prices; price adjusted for inflation.
Consumer price index:
Measure of the aggregate price level.
Producer Price Index:
Measure of the aggregate price level for intermediate products and wholesale goods.
Nominal Price
Absolute price of a good, unadjusted for inflation
Real Price:
Price of a good relative to an aggregate measure of prices; price adjusted for inflation.
Consumer price index:
Measure of the aggregate price level.
