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Microeconomics Review: Foundations, Trade, and Supply & Demand

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Termini in questo insieme (40)

  • Role of assumptions in economic models
    Assumptions simplify reality to focus on key relationships, making models easier to analyze and understand.
  • Difference between normative and positive analysis
    Positive analysis describes what is and can be tested; normative analysis involves opinions about what ought to be. Economists mainly perform positive analysis.
  • Distinguish between macroeconomics and microeconomics
    Microeconomics studies individual agents and markets; macroeconomics studies the economy as a whole. Key macro terms: inflation, unemployment, GDP.
  • Does microeconomics make up macroeconomics or vice versa?
    Microeconomics makes up macroeconomics; macro aggregates microeconomic behavior.
  • Define Entrepreneur
    An individual who organizes resources to start and operate a business, taking on financial risks.
  • Define Innovation
    The process of creating new products, services, or methods that improve efficiency or value.
  • Define Technology
    The application of scientific knowledge for practical purposes, especially in industry.
  • Define Firm, Company, or Business
    An organization that produces goods or services to sell to consumers.
  • Define Goods
    Physical, tangible products that satisfy human wants or needs.
  • Define Services
    Intangible activities or benefits provided to consumers.
  • Define Revenue
    Total income a firm receives from selling goods or services.
  • Define Profit
    Revenue minus total costs; the financial gain from business activities.
  • Define Household
    Individuals or groups living together who consume goods and services and supply factors of production.
  • Define Factors of Production
    Resources used to produce goods and services: land, labor, capital, and entrepreneurship.
  • Define Capital
    Man-made resources used to produce other goods and services, like machinery and buildings.
  • Define Human Capital
    Skills, knowledge, and experience possessed by an individual or workforce.
  • What is slope and how is it calculated in the PPF model?
    Slope is the rate of trade-off between two goods; calculated as \(\frac{\text{change in } y}{\text{change in } x}\).
  • What are trade-offs? Give an example.
    Trade-offs occur when producing more of one good requires producing less of another, e.g., choosing between guns and butter.
  • What is a Production Possibilities Frontier (PPF)?
    A curve showing maximum output combinations of two goods an economy can produce with available resources.
  • What points on the PPF are attainable, efficient, inefficient, and unattainable?
    Points on the curve are efficient; inside are inefficient; outside are unattainable with current resources.
  • What causes a PPF to be non-linear?
    Increasing marginal opportunity costs cause a bowed-out (non-linear) PPF due to resources not being equally efficient in all uses.
  • What is economic growth in terms of the PPF?
    Economic growth shifts the PPF outward, allowing more production of goods.
  • Define Absolute Advantage
    The ability to produce more of a good with the same resources than another producer.
  • Define Comparative Advantage
    The ability to produce a good at a lower opportunity cost than another producer.
  • What is the basis for trade?
    Trade occurs because of comparative advantage, allowing mutual gains by specializing in lower opportunity cost goods.
  • What are markets and what three questions do they answer?
    Markets are places where buyers and sellers interact to answer: What to produce? How to produce? For whom to produce?
  • Define market economy
    An economy where decisions are made by individuals and firms with little government intervention, e.g., the USA.
  • Define centrally planned economy
    An economy where the government makes all production and distribution decisions, e.g., North Korea.
  • Define mixed economy
    An economy combining market forces and government intervention, e.g., most modern economies.
  • What is the Law of Demand?
    As price falls, quantity demanded rises, ceteris paribus (all else equal).
  • Why does the demand curve slope downward?
    Because lower prices increase quantity demanded due to substitution and income effects.
  • Difference between change in demand and change in quantity demanded
    Change in demand shifts the curve; change in quantity demanded moves along the curve due to price changes.
  • Five demand curve shifters
    Income, prices of related goods, tastes, expectations, and number of buyers.
  • What is the Law of Supply?
    As price rises, quantity supplied rises, ceteris paribus.
  • Why does the supply curve slope upward?
    Higher prices incentivize producers to supply more.
  • Difference between supply and quantity supplied
    Supply is the entire curve; quantity supplied is a point on the curve at a specific price.
  • Five supply curve shifters
    Input prices, technology, expectations, number of sellers, and taxes/subsidies.
  • What is market equilibrium?
    The price where quantity demanded equals quantity supplied; no shortages or surpluses.
  • What causes shortages and how are they resolved?
    Shortages occur when price is below equilibrium; prices rise to restore equilibrium.
  • What causes surpluses and how are they resolved?
    Surpluses occur when price is above equilibrium; prices fall to restore equilibrium.