Download Principles of Microeconomics Exam #1: Study Guide & Key Terms and more Exams Microeconomics in PDF only on Docsity!
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effort
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Scarcity The limited nature of societies resources Economics The study of how people make decisions
Microeconomics Individual units that comprise the econo-
Macroeconomics The study of the broader economy
Incentives Factors that motivate you to act or exert
The governor decides to increase fund- Trade-offs
Opportunity cost
ing for education. However, this will mean decreasing funding for infrastructure. This situation illustrates The highest-valued alternative that must be sacrificed in order to get something else Evaluate whether the benefit of one more unit of something is greater than the cost
Positive statement A claim that can be tested to be true or
Normative statement A statement of opinion, cannot be tested
Latin: "other things being equal" As- Ceteris paribus
Production possibilities curve
sumption in which we examine a change in one variable, but hold all other vari- ables constant A graph or economic model that shows the maximum combinations of goods and services, any two categories of goods, that can be produced from a fixed amount of resources Ability to produce a good or service more efficiently than another producer The situation in which an individual, busi- Comparative advantage ness, or country can produce at a lower opportunity cost than a competitor
Marginal thinking
Absolute advantage
tion
able goods
given price
other
Consumer goods Goods produced for current consump-
Capital goods Goods that can help produce other valu-
Investment Using resources to make new capital All other things equal, there is an inverse Law of demand relationship between price and quantity demanded
Quantity demand The amount of a good purchases at a
Table showing the relationship between price and quantity demanded Graph of the relationship between price and quantity demanded Horizontal sum of all individual quantities Market demand demanded by each buyer in the market at each price Good in which we buy more of when we get more income Good in which we buy less of when we get more income
Substitutes Goods that can be used in place of each
Complements Two goods used together All other things equal, there is a direct Law of supply
Quantity supplied
relationship between price and quantity supplied The amount of the good or service that producers are willing and able to sell at the current price Table showing the relationship between price and quantity supplied
Supply curve
Demand curve
Demand schedule
Normal good
Inferior good
Supply schedule
What is the opportunity cost of produc- ing capital goods instead of consumer goods?
Assume you like Pepsi, and your income increases. What will happen to the de- mand of Pepsi?
Suppose the price of good X increases. In terms of demand, what is the result?
Suppose goods X and Y are substitutes for each other. If the price of good Y in- creases, what is the result in the market for good X?
Suppose there is a shortage in the mar- ket for avocados. According a competi- tive and unrestrained market, what hap- pens over tine?
Consider the market for bananas. Sup- pose that both the supply and demand for bananas increases simultaneously. Which of these effects is certain?
Which of the following will most likely cause a decrease in the supply of most fruits and vegetables?
We give up consumption today
The demand for Pepsi increases
The quantity demanded of X decreases.
The demand for X increases
The price of avocados will rise, and the market will eventually reach equilibrium.
The equilibrium quantity of bananas will increase.
Harsh punishments for farmers that hire undocumented workers
