Microeconomics - 1.1 Flashcards
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.
