Flashcards in Microeconomics Deck (54):
What is a time-series graph?
A graph showing changes in a variable over time. Commonly, time is considered the independent variable and plotted on the horizontal "X" axis.
What is the meaning of a graphed plot with a negative slope?
The two variables move in opposite directions (i.e., the dependent variable decreases as the independent variable increases).
What is the meaning of a graphed plot with a positive slope?
The two variables move in the same direction (i.e., the dependent variable increases as the independent variable increases).
What does "ceteris paribus" mean, as used in economics?
Assumption that any influences other than the variable(s) being considered are held constant. Literally, "all else being equal."
What is the role of graphs in economics?
Graphs show the relationship between two variables, usually referred to as the independent and the dependent variables.
What are the characteristics of a Market (free-enterprise) economic system?
Distinct entities determine production, distribution and consumption in an open market (e.g., Capitalism).
What are the characteristics of a Command economic system?
Government largely determines the production, distribution and consumption of goods and services (e.g., Communism and Socialism).
What are the major types (extremes) of economic systems?
1. Command Economic System;
2. Market (Free-enterprise) Economic System
What is international economics?
Economic activities that occur between nations and outcomes that result from those activities.
What is macroeconomics?
The economic activities and outcomes of a group of entities taken together, typically of an entire nation or major sectors of a national economy.
What is microeconomics?
The economic activities of distinct decision-making entities, including individuals, households and business firms.
Identify the major divisions of the field of economics.
Study of the allocation of scarce economic resources among alternative uses.
List the types of economic resources.
Acquired from individuals as: 1.Labor: human work, skills, and similar human effort;
2.Capital: financial resources (e.g., savings) and man-made resources;
3.Natural Resources: land, minerals, timber, water, etc.
In an economic context, what makes up compensation?
Payments to individuals as: 1.Wages, salaries and profit sharing for labor;
2.Interest, dividends, rental and lease payments for capital;
3.Rental, lease and royalty payments for natural resources.
Describe the relationship between economic resources and compensation in a free-market economy.
Business firms acquire economic resources from individuals (labor, capital and natural resources), who receive compensation in return (wages/salaries, rents, interest, dividends, etc.); individuals use this compensation to acquire goods and services produced by businesses.
What determines "price"?
The supply of and demand for the commodity being priced.
List the characteristics of a free-market economy.
1.Interdependent relationship between individuals and business firms;
2.Production depends on preferences of individuals with ability to pay for goods and services;
3.Production depends on availability of economic resources, level of technology, and how business firms choose to use them;
4.Production depends on sale price being at least equal to production cost.
Desire, willingness and ability to acquire a commodity.
Define "individual demand".
The quantity of a commodity that will be demanded by an individual (or other entity) at various prices during a specified time, ceteris paribus.
Define "market demand".
The quantity of a commodity that will be demanded by all individuals (and other entities) in the market at various prices during a specified time, ceteris paribus.
Describe the income effect as it applies to individual demand.
A given amount of income buys more units at a lower price.
Describe the substitution effect as it applies to individual demand.
Lower-priced items will be purchased as substitutes for higher-priced items.
What are the factors that change market demand?
1.Size of market;
2.Income or wealth of market participants;
3.Preferences of market participants;
4.Change in prices of other goods and services
Distinguish between a change in quantity demanded and a change in demand.
A change in quantity demanded is movement along a given demand curve as a result of change in price only. A change in demand is a shift in a demand curve as a result of changes in variables other than price.
Define an "individual supply schedule".
A schedule that shows the quantity of goods that an individual producer is willing to provide (supply) at various prices during a specified time.
Distinguish between a change in quantity supplied and a change in supply.
A change in quantity supplied is movement along a given supply curve as a result of change in price only. A change in supply is a shift of a supply curve as a result of changes in variables other than price.
What are the variables that change aggregate supply?
1.Number of providers;
2.Cost of inputs;
3.Government taxation or subsidization;
Describe the principle of increasing cost.
Production costs increase in the short-run as the quantity produced increases, because new resources are not used as efficiently as the resources used previously .
What is the slope of a normal supply curve?
A normal supply curve has a positive slope: at a higher price, a greater the quantity will be supplied.
Define "market supply schedule".
A schedule that shows the quantity of a commodity that will be supplied by all providers in the market at various prices during a specified time.
Supply is the quantity of a commodity (good or service) that will be provided at alternative prices during a specified time.
How can government directly influence market equilibrium?
1.Taxation increases the cost and shifts the market supply curve up and to the left; tax decreases have the opposite effects;
2.Subsidization decreases the cost and shifts the market supply curve down and to the right; decreases in subsidization have the opposite effects;
3.Rationing reduces demand, thus shifting the demand curve downward and to the left, thus lowering the equilibrium quantity and price.
Describe the results of a change in market supply (only) on equilibrium.
1.Increase in market supply = Supply curve shifts down and to the right; Decrease in market supply = Supply curve shifts up and to the left;
2.Increase in market supply w/no change in demand = Decrease in equilibrium price and increase in equilibrium quantity;
3.Decrease in market supply w/no change in demand = Increase in equilibrium price and a decrease in equilibrium quantity.
Describe the results of a change in market demand (only) on equilibrium.
1.Increase in market demand = Demand curve shifts up and to the right; Decrease in market demand = Demand curve shifts down and to the left;
2.Increase in market demand w/no change in supply = Increase in both equilibrium price and equilibrium quantity;
3.Decrease in market demand w/no change in supply = Decrease in both equilibrium price and equilibrium quantity.
What causes a market surplus?
A market surplus is created when actual price (AP) of a commodity is more than the equilibrium price; therefore, quantity supplied is more than quantity demanded (e.g., minimum wage).
What causes a market shortage?
A market shortage is created when actual price (AP) of a commodity is less than the equilibrium price; therefore, quantity supplied is less than quantity demanded at AP (e.g., rent controls).
Define "market equilibrium price".
1.Price at which the quantity of a commodity supplied is equal to the quantity of that commodity demanded;
2.The intersection of the market demand and supply curves.
Identify four measures of elasticity.
1.Elasticity of Demand;
2.Elasticity of Supply;
3.Income Elasticity of Demand;
4.Cross Elasticity of Demand.
Define "elasticity of supply".
The percentage change in the quantity of a commodity supplied as a result of a given percentage change in the price of the commodity.
Define "elasticity of demand".
The percentage change in quantity of a commodity demanded as a result of a given percentage change in the price of the commodity.
Define "elasticity" (as used in economics).
Measures the percentage change in a market factor as a result of a given percentage change in another market factor.
What does "demand is elastic" mean?
If demand is elastic, the percentage change in demand is greater than the percentage change in price, the elasticity coefficient is greater than 1 and total revenue will change in the opposite direction as the change in price.
What is represented by an indifference curve?
Various quantities of two commodities that give an individual the same total utility as plotted on a graph.
Define "marginal utility".
The utility derived from each (additional) marginal unit (i.e., from the last unit acquired).
Define "utils", as used in economics.
Hypothetical unit of measure used to measure satisfaction derived from a commodity.
Define "utility", as used in economics.
Satisfaction derived from the acquisition or use of a commodity.
Define the "law of diminishing marginal utility".
Decreasing utility (satisfaction) is derived from each additional (marginal) unit of a commodity acquired.
Describe economies of scale (also called increasing return to scale).
The long-run average cost curve is decreasing, reflecting that the quantity of output is increasing in greater proportion than the increase in inputs, largely due to specialization of labor and equipment. The long-run average cost curve is decreasing, reflecting that the quantity of output is increasing in greater proportion than the increase in inputs, largely due to specialization of labor and equipment.
The long-run average cost curve is decreasing, reflecting that the quantity of output is increasing in greater proportion than the increase in inputs, largely due to specialization of labor and equipment.
Average variable cost, Average total cost and Marginal cost curves have a "U" shape. Average fixed cost has a continuously downward-sloped curve.
Define the "law of diminishing returns".
The point at which the quantity of variable inputs begins to overwhelm the fixed factors, resulting in inefficiencies and diminishing return on marginal units of variable inputs.
Identify and describe the kinds (types) of cost that make up total cost.
1.Total Fixed Cost (FC): Costs which cannot be changed with changes in the level of output;
2.Total Variable Cost (VC): Costs for variable inputs which will vary directly with changes in the level of output;
3.Total Cost (TC) = FC + VC.
What are the three major kinds (types) of cost used in short-run economic analysis?
1.Total Cost = Total Fixed Cost + Total Variable Cost;
2.Average Cost = Cost per-unit of commodity produced;
3.Marginal Cost = Cost of the last acquired unit of an input.