micro open ended answers Flashcards
(5 cards)
what do economists study
economicsts deal with the concept of scarcity, in front of the fact that humans have unlimited wants. they therefore explore and explan production and consumption possibilities through these limited resources primarily, land labour and capital and how they can be used. they study the relationship between demand and supply to understand what is needed and what is available. on a larger scale through macro economics, economists study the patterns of society as a whole and how different aspects regarding unemployment, money supply, governmental policy, investment patters, and many more affect different variables such as inflation, unemployment rate, consumption and output of a country as a whole. essentially going into the larger patters that come from individual decisions under certain conitions.
difference between the budget line, Production pissibilities curve PPC and the indifference curve, do they shift or move how and why? how doesw the optimum consumption point come into play?
budget line: shows all combinations of 2 goods a consumer can afford with their income showing trade offs due to limited resources. it shifts when the income changes or the price of both goods changes, it only tilts when one of the 2 changes
PPC production possibilities curve: illustrates combinations of 2 goods that can be produced using limited resources efficiently highliting the concept of opportunity cost. the ppc shifts when there is an advancement in technology, or overal improvement in the efficiency of the factors of production
indifference curve: shows the different combinations of 2 goods that provide the consumer with the same level of satisfation or utility. the indifference curve doesnt shift but the optimum consumption point is achieved when the budget line touches the highest possible indifference curve indicating the best combination
inocome substitution effect, and how they apply to normal inferior and giffen goods
income effect refers to how a change in income affects a change in the consumption choices of the consumer.
substitution effect refers to how a change in price of a good makes it more or less attractive compared to other goods. leading to a change in consumption.
Normal goods when income increases consumption increases positive income effect. if the price of the good decreases the consumer will substitute it for a relativly more expensive on positive substituttion effect
inferior goods as income rises their demand decreases negative income effect but the substitution effect is still positive
giffen goods special inferior good that even when the price rises people may still buy more because the income effect outweighs the substitution effect
what is the demand curve and how does it relate to the marginal utility theory
the downward sloping demand curve is explained by the theory of marginal utility. which states that for every extra unit purchased the marginal utility (the satisfation gained per extra unit) decreases, that is why when the price increase consumers are willing to buy less because the satisfation is decreased.
