Microeconomics Quiz 1 (Chapter 1)

Economics

Economics

examines how individuals, institutions, and society make choices under conditions of scarcity

Scarce Resource

limited amounts of goods and services available for consumption

Opportunity Cost

Amount of other products that must be forgone or sacrificed to produce a unit of a product

Utility

The satisfaction or pleasure a consumer obtains from consumption of goods or services

Marginal Analysis

Comparison of extra/additional befits and marginal costs, usually for decision making

Marginal Benefit

perceived lifetime pleasure (utility) from a product

Marginal Cost

added expense beyond the cost of a product

Economic Principle

A widely accepted generalization about the economic behavior of individuals or institutions

Ceteris Paribus (Other-things being unchanged or constant)

The assumption that factors other than those being considered do not change

Microeconomics

concerned with decision making by individual customers, workers, households, and business firms. And individual markets, specific goods/services, product, and resource prices.

Positive economics

Analysis of facts or data to establish scientific generalizations about economic behavior (“what is”)

ex. “The unemployment rate in France is higher than that in the US”

Normative economics

value judgements about what the economy should be like or what policy actions should be recommended. (“What ought to be”)

ex. “France ought to undertake policies to make its labor market more flexible to reduce unemployment rates”

Economizing problem

the need to make choices because economic wants exceed economic means.

Income

Wages, interest, rent, profit, and or money from government programs or family members.

Unlimited Wants

extend over wide range of products, from necessities (eg. food, shelter, clothing) to luxuries (perfumes, yachts, sports cars).

Budget line/Budget constraint

Schedule or curve that shows various combinations of two products a consumer can purchase with a specific income.

Economic resources

Land, labor, capital, and entrepreneurial ability that are used to produce goods and services. (aka facotrs of production)

Land

any and all natural resources used to produce goods and services.

eg. oceans, sunshine, coal deposits, water, wind power, sunlight, arable land.

Labor

Any mental or physical exertion on the part of a human being that is used in the production of a good or service.

Capital

All manufactured/man-made physical objects (i.e factories or roads) and intangible ideas that do not directly satisfy human wants but help produce goods/services that do satisfy human wants.

Investments

spending that pays for the production and accumulation of capital goods.

Consumer Goods

products and goods that satisfy human wants directly

Capital goods

Human made resources (i.e electrical grids) used to produce goods and services. (indirectly satisfy human wants)

What are considered “inputs”?

Inputs or factors of production are the 4 economic resources (i.e land, labor, capital, and entrepreneurial ability) combined to produce goods and services.

What is the purpose of a production possibilities table?

To list different combinations of two products that can be produces with a specific set of resources, assuming full employment.

What two factors are needed to determine optimal output mix on a production possibilities curve?

Marginal Benefit and Marginal Cost

How does the economy result in economic growth?

1. Increases in supplies of resources

2. improvements in resource quality

3. technological advances

Supply Function

S*=f(p**,costs, technology,productivity, Psubstitute, # of supply)

p*=price

productivity, technology= shift variable

Psub= price company can produce

Demand Function

D=f(P*, tastes, income,Psubstitute, Pcomplements, P^e)

p*=price

P^e= equilibrium

Income = shift variable