Foundations of Microeconomics Flashcards
(44 cards)
What is microeconomics?
The study of how households and firms make choices, interact in markets, and how the government influences these choices.
What is macroeconomics?
The study of the economy as a whole, including inflation, unemployment, and economic growth
Name three key economic ideas.
- People are rational. 2. People respond to economic incentives. 3. Optimal decisions are made at the margin.
What is marginal analysis?
Analysis involving comparing marginal benefits and marginal costs.
Define scarcity.
A situation where unlimited wants exceed limited resources.
What are resources?
Inputs used to produce goods and services, including land, water, minerals, labor, capital, and entrepreneurial ability.
What is a trade-off?
Producing more of one good or service means producing less of another due to scarcity.
What are the three fundamental questions society must answer due to trade-offs?
- What goods and services will be produced? 2. How will they be produced? 3. Who will receive them?
What does a production possibility frontier (PPF) represent?
The maximum attainable combinations of two products with available resources.
What is opportunity cost?
The highest-valued alternative that must be given up to engage in an activity.
In Tesla’s PPF example, what does a point outside the frontier represent?
An unattainable combination with current resources.
What does a point inside the PPF indicate?
Inefficient use of resources.
What shape of the PPF illustrates increasing marginal opportunity costs?
The bowed-out shape.
How does technological change affect the PPF?
It shifts the frontier outward, enabling more production.
What is demand?
The amount of a good or service that consumers are willing and able to buy at a given price.
What is a demand schedule?
A table showing the relationship between price and quantity demanded.
What is demanded in market demand?
The total demand by all consumers for a good or service.
State the law of demand.
Holding other variables constant, when the price falls, quantity demanded increases; when price rises, quantity demanded decreases.
What is the ceteris paribus condition?
Everything else is held constant when analyzing the relationship between two variables.
Name two effects explaining the law of demand.
- The substitution effect. 2. The income effect.
What are the five variables that shift market demand?
- Income, 2. Prices of related goods, 3. Tastes, 4. Population/demographics, 5. Future prices.
What causes a change in demand?
A shift of the demand curve due to changes in variables like income, prices of related goods, tastes, etc.
How do you distinguish between a change in demand and a change in quantity demanded?
A change in demand shifts the demand curve; a change in quantity demanded results in a movement along the curve.
What is supply?
The amount of a good or service that producers are willing and able to supply at a given price.
