Microeconomics - 1.1 Flashcards
(22 cards)
What is microeconomics?
The economic behaviour of indivudual units rather than the whole
Economists make assumptions. What to do they use to make assumptions and what does it mean?
‘Ceteris Paribus’ - means other things are being held equal, so nothing else changes
What are positive economic statements? What is an example?
Statements based on facts, which can be tested true and fale. ‘Numbers of those who are obese have increased since May 2015’
What are normative economic statements? What is an example?
Statements based on value judgements which cannot be tested as true/false (look out for the word should). ‘Smoking is anti-social and should be banned’
What statement does economic analysis tend to be more based on?
Positive economic statements.
Governments make value judgements on economic issues AND …
how much they get involved with the economy will depend on these normative issues.
What is the basic economic problem?
There are scarce resources to satisfy the infinite wants of the consumer.
Due to the basic economic problem, what do economic agents have to do?
Make choices and resources must be allocated between uses - leading to opportunity cost.
What is opportunity cost?
The benefits forgone of the next best alternative.
What do rational consumers wish to do?
Maximise their satisfaction from consumption (choosing how to spend their income)
What do producers/firms wish to do?
Maximise profit - (producing at the lowest cost the goods and services desired by the customers)
What is the equation for profit?
PROFIT = TOTAL REVENUE - TOTAL COST
What is the equation for total revenue?
TOTAL REVENUE = QUANTITY x SELLING PRICE
What does the government wish to do?
Improve economic and social welfare of citizens.
What is an economy?
A system which attempts to solve the basic economic problem on different levels - Household, Local, National, International.
How does an economy attempt to solve the basic economic problem?
3 questions - What to produce? How to produce it? From whom will the production take place?
What is a non-renewable resource?
Goods which are finite in supply, and once used, there is no way to replenish them.
What is a renewable resource?
Goods which are replaceable over time (providing that the rate of extraction is less than the natural rate at which the resource renews itself)
What is a free good?
Goods which do not use any factor income when supplied and have no opportunity cost
What is a consumer good?
Goods + services which satisfy your need and wants directly
What is a capital good?
Goods which are used to make consumer goods/services.
What is the PPF (Production Possibility Frontier)
The Maximum output an economy can achieve when its resources are fully Kefficently used
