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Microeconomics: Basic Economic Concepts and Circular Flow Model

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Termini in questo insieme (20)

  • What is scarcity in economics?

    Scarcity is the condition of wanting more than we can get with available resources, meaning people face limited resources and must make choices.

  • Define opportunity cost.

    Opportunity cost is the value of the next-best alternative given up when making a choice.

  • What is marginal decision making?

    Marginal decision making involves comparing additional benefits and additional costs of a choice, ignoring sunk costs.

  • What are sunk costs?

    Sunk costs are costs already paid that should not affect current or future decisions.

  • How do incentives affect behavior?

    Incentives influence behavior by changing trade-offs; positive incentives encourage actions, negative incentives discourage them.

  • What is collateral in lending?

    Collateral is a borrower's pledged asset (like a house or car) that a lender can take if the loan is not repaid.

  • How did Grameen Bank use group responsibility as an incentive?

    Borrowers applied in groups; if one defaulted, the whole group lost borrowing privileges, creating social pressure to repay.

  • What is economic efficiency?

    Efficiency means using resources in the most productive way to produce goods and services with the greatest total economic value.

  • Name four reasons why opportunities might not be exploited despite efficiency assumptions.

    Innovation, market failure, government intervention, and goals other than profit.

  • What is the difference between microeconomics and macroeconomics?

    Microeconomics studies individual and firm resource management; macroeconomics studies the economy at regional, national, or international levels.

  • What are the two main markets in the circular flow model?

    The market for goods and services and the market for factors of production.

  • Who are the two main actors in the circular flow model?

    Households supply land, labor, and capital and buy goods; firms buy factors of production and produce goods and services.

  • Describe the flow of money in the circular flow model.

    Households spend money to buy goods and services; firms receive revenue and pay wages, rent, and profits to households.

  • Describe the flow of goods and services in the circular flow model.

    Households provide factors of production to firms; firms produce goods and services sold back to households.

  • What is the difference between correlation and causation?

    Correlation means two variables move together; causation means one variable causes the other.

  • What are omitted variables in economic analysis?

    Variables not included in analysis that affect both variables studied, potentially misleading conclusions about causation.

  • What is reverse causation?

    When it is unclear whether A causes B or B causes A, leading to potential misinterpretation of cause and effect.

  • What makes a good economic model?

    A good model predicts cause and effect, makes clear assumptions, and describes the real world accurately enough to be useful.

  • What is the difference between positive and normative analysis?

    Positive analysis describes how the world is; normative analysis prescribes how the world should be.

  • Why is assuming rational behavior useful in economics?

    It helps explain and predict choices by assuming people weigh costs and benefits to achieve goals effectively.