Microeconomics synthesis flashcards

Microeconomics 1

The study of the allocation of scarce resources.

Trade Offs 1

The concept that individuals, businesses, and governments have to make choices about what goods and services to produce due to limited resources.

Prices. 1

Play a critical role in determining what is produced, how it's produced, and who gets it.

Models. 1

Used by economists to understand relationships, make predictions, and understand cause-and-effect relationships in microeconomics.

Constraints 1

Describes the limitations on choices due to limited resources and factors such as prices, income, demand, and technology.

Positive Statements. 1

Testable hypotheses about cause and effect in economics.

Normative Statements. 1

Express value judgments or opinions about what should happen in economics.

Demand 2

The quantity of a good or service that consumers are willing to buy at a given price, holding constant other factors that influence purchases.

Demand Curve 2

Shows the quantity demanded at each possible price, holding constant other factors that influence purchases.

Law of Demand 2

Consumers demand more of a good if its price is lower, holding constant other factors that influence the amount they consume.

Movement along the demand curve 2

When the price of a good changes and people buy more or less of the product because of it, assuming other factors stay the same.

Shift of the demand curve 2

A change in factors other than the price of the good itself that results in a shift of the demand curve.

Substitute 2

A good or service that may be consumed instead of another good or service.

Complement 2

A good or service that is jointly consumed with another good or service.

Demand Function 2

Shows the effect of all relevant factors on the quantity demanded.

Supply 2

The amount of a good that firms want to sell at a given price, holding constant other factors that influence firms' supply decisions.

Supply Curve 2

Shows the quantity supplied at each possible price, holding constant other factors that influence firms' supply decisions.

Effects of Price on Supply 2

As the price increases, firms supply more.

Shift of the supply curve 2

A change in factors other than the price of the good itself that results in a shift of the supply curve.

Supply Function 2

Shows the relationship between the quantity supplied, price, and other factors that influence the number of units offered for sale.

Total supply curve 2

The curve that shows the total quantity produced by all suppliers at each possible price.

Market supply curve 2

The combination of quantities at different prices that gives the total supply in the entire market.

Equilibrium 2

The point where the market supply curve meets the demand curve, representing the price and quantity that satisfy both buyers and sellers.

Quota 2

The limit set by a government on the quantity that may be imported of a foreign-produced good.

Market clearing price 2

The equilibrium price that removes from the market all frustrated buyers and sellers, resulting in no excess demand or excess supply.

Shock 2

A change in one of the variables held constant in the supply and demand curves that disturbs the equilibrium.

Price ceiling 2

A maximum price set by the government for certain goods to keep them affordable, which can lead to shortages if below the equilibrium price.

Price floor 2

A minimum price set by the government, such as minimum wage laws, which can lead to unemployment if set above the equilibrium wage.

Elastic demand 2

When consumers are highly responsive to price changes, either buying a lot at lower prices or stopping buying at higher prices.

Inelastic demand 2

When consumers are not very responsive to price changes, consistently buying the same quantity regardless of price adjustments.

Price elasticity of demand (PED) 3

Measures how much the quantity demanded changes when the price changes.

Law of Demand 2

Consumers demand less quantity as the price rises, illustrated by the negative elasticity of demand.

Elasticity of demand curve 3

The variation of elasticity along a demand curve, different at every point for a downward-sloping linear demand curve.

Perfectly inelastic demand 3

When the demand is completely unresponsive to price changes, resulting in an elasticity of demand of zero.

Inelastic 3

When the quantity demanded does not change much in response to a change in price.

Perfectly inelastic 3

When the quantity demanded does not change at all in response to a change in price.

Demand elasticity 3

A measure of how responsive the quantity demanded is to changes in price.

Elastic demand 3

When a 1% increase in price leads to a more than 1% decrease in quantity demanded.

Inelastic demand 3

When a 1% increase in price leads to a less than 1% decrease in quantity demanded.

Unit elastic demand 3

When a 1% increase in price leads to a 1% decrease in quantity demanded.

Horizontal demand curve 3

When people are willing to buy as much as firms sell at any price less than or equal to a certain price.

Vertical demand curve 3

When the quantity demanded remains unchanged regardless of changes in price.

Cross-price elasticity 3

A measure of how the price of one product affects the demand for another product.

Complements 4

Goods that are used together, so when the price of one increases, people buy less of both.

Substitutes 4

Goods that can be used in place of each other, so when the price of one increases, people buy more of the other.

Elasticity of supply 3

A measure of how much more or less of a product a producer is willing to make when the price of that product changes.

Perfectly inelastic supply 3

When the quantity supplied does not change as price rises.

Inelastic supply 3

When a 1% increase in price causes a less than 1% rise in the quantity supplied.

Unitary elasticity of supply 3

When a 1% increase in price causes a 1% increase in quantity supplied.

Elastic supply 3

When a 1% increase in price leads to a more than 1% increase in quantity supplied.

Perfectly elastic supply 3

When the quantity supplied changes infinitely in response to any change in price.

Short-run elasticity 3

How responsive consumers are to changes in price when they don't have much time to adjust.

Long-run elasticity 3

How people or businesses respond to changes in price or other factors when they have more time to make adjustments.

Income elasticity of demand 3

A measure of how much people's demand for a product changes when their income changes.

Cross-price elasticity 3

A measure of how the price of one product affects the demand for another product.

Ad valorem tax 3

A sales tax that is a fraction of the total amount spent by the consumer.

Specific tax 3

A sales tax that is a fixed amount per unit of the product sold.

Equilibrium

The price and quantity at which supply and demand are balanced in a market.

Tax Revenue 3

The money collected by the government from taxes.

Tax Incidence 3

The distribution of the tax burden between buyers and sellers.

Elasticity 3

The responsiveness of quantity demanded or supplied to changes in price.

Ad Valorem Tax 3

A tax imposed as a percentage of the price of a good or service.

Subsidy 3

A negative tax where the government gives money to firms or consumers.

Consumer Behavior 4

How individuals make decisions when faced with limited resources.

Preferences 4

The ranking of different bundles of goods based on consumer choices.

Indifference Curves 4

Graphical representations of a consumer's preferences.

Marginal Rate of Substitution 4

The rate at which a consumer is willing to exchange one good for another while remaining at the same level of satisfaction.

Utility 4

The satisfaction or pleasure a consumer gets from consuming a particular bundle of goods.

Utility Function 4

A mathematical representation of a consumer's preferences.

Marginal Utility 4

The extra utility/satisfaction a consumer gains from consuming one additional unit of a good while keeping the consumption of other goods constant.

Budget Constraint 4

The limit on what a consumer can buy, determined by their income and the prices of goods.

Opportunity Set 4

The collection of all possible bundles of goods that a consumer can afford within their budget constraint.

Slope of the Budget Constraint 4

The rate at which one good must be given up to obtain more of another good, determined by the relative prices of the goods. (MRT : marginal rate of transformation)

Constrained Consumer Choice

The optimization process where consumers aim to maximize their utility while staying within their budget.

Optimal Bundle

The combination of goods and services that provides the highest level of satisfaction for a consumer within their budget.

Marginal Rate of Transformation (MRT)

The rate at which a consumer can trade one good for another in the market, without changing the total production level. (slope of budget constraint)

Convex Indifference Curve

The assumption that consumers prefer to have a variety of goods rather than consuming only one, leading to a preference for combinations of goods.

Behavioral Economics

The field that recognizes that individuals' decisions and preferences are influenced by cognitive biases, emotional attachments, and other psychological factors.

Transitivity

The consistency in decision-making, which can sometimes be violated by people's preferences.

Endowment Effect

The tendency for people to overvalue items they own compared to what they would pay to buy them.

Salience Effect

The idea that people tend to focus more on information that is prominent, easily noticeable, or emotionally charged.

Determining Demand Curves

The use of consumer theory to show the shape of demand curves and predict the impact of factors such as prices and income on demand.

Price Change Effects

The impact of price changes on demand, including the substitution effect and the income effect.

Price-Consumption Curve

The curve that illustrates the various combinations of goods that a consumer can buy with a fixed income, showing how changes in prices influence quantities.

Shapes of PCC

The different shapes of the price-consumption curve, including upward slope, flat slope, downward slope, and backward bending.

Income Elasticities

Measures of how demand changes when income increases, indicating the responsiveness of demand to income changes.

Engel Curve

The curve that shows the relationship between income and the quantity demanded of a good.

Substitution Effect

The change in the quantity demanded of a good due to changes in its price, leading consumers to opt for relatively cheaper alternatives.

Income Effect

The change in the quantity demanded of a good due to changes in income, caused by a price increase reducing a consumer's purchasing power.

Effects of Price Change

The combined impact of the substitution effect and the income effect when the price of a good changes.

Substitution effect

The unambiguous movement of consumption towards one good when the other becomes relatively cheaper.

Income effect

The direction of movement depends on the type of good, with ambiguous direction.

Inferior good

A basic good that violates the law of demand, where the income and substitution effects move in opposite directions.

Firm (Chap 6)

Organizations that turn inputs like labor + materials) into goods or services.

Ownership and management (chap 6)

The relationship between owners and managers in a firm, with potential conflicting objectives.

Limited liability (chap 6)

Protection of personal assets of owners in a corporation, minimizing their financial risk.

Profit maximization (chap 6)

The goal of owners to maximize the difference between revenue and costs in order to stay competitive.

Production function (chap 6)

shows the relationship between the number of inputs used and the maximum output that can be achieved

q= f(L,K)

Short run production

Production adjustments made by varying only the variable inputs in the short run, while fixed inputs remain constant.

Marginal product of labor

The additional output produced from adding one more unit of labor

MPL=∆q/∆L