Introduction to Economics Microeconomics 1

These flashcards cover key concepts and principles from the introduction to economics with a focus on microeconomics, as found in the lecture notes.

What is the main focus of microeconomics?

Microeconomics studies how households and firms make decisions and interact in markets.

What does the Law of Demand state?

As the price rises, the quantity demanded falls, and as the price falls, the quantity demanded rises.

What is opportunity cost?

Opportunity cost is the value of the best alternative that must be given up to obtain something.

What is the difference between positive and normative economics?

Positive economics deals with objective statements about what is, while normative economics involves subjective statements about what ought to be.

What are the four principles of economics summarized in the lecture?

1. People face trade-offs; 2. The cost of something is what you give up to get it (opportunity cost); 3. Rational people think at the margins; 4. People respond to incentives.

What is the purpose of studying economics according to Joan Robinson?

The purpose is to learn how to avoid being deceived by economists, rather than just acquiring ready-made answers to economic questions.

How is market demand derived?

Market demand is derived by horizontally summing the individual demand curves of all consumers for a particular good or service.

What causes a shift of the demand curve?

A shift of the demand curve is caused by factors that alter the quantity demanded at every price, such as changes in income, consumer preferences, the number of consumers, or expectations.

What graphical representation is used to show direct association?

An upward sloping curve represents a direct association or positive relationship between two variables.

How do we represent changes in demand on a graph?

Changes in demand are represented by shifts of the demand curve to the left (decrease) or to the right (increase).

What is opportunity cost

The best alternative that must be given up to obtain an item

Why does opportunity cost exist?

Opportunity cost exists due to scarcity, since having one more of one thing, means having less of another

What is a trade-off?

A trade-off refers to making a decision that requires a sacrifice to achieve the desired outcome.

Why does a trade-off occur?

A trade-off occurs due to scarcity. Resources are scare, meaning there’s not enough of everything to satisfy everyone’s wants and needs. Hence they must sacrifice one thing for another to achieve their desired outcome

People think on the margin. What does that mean?

This means that, instead of thinking should I do this, people think should I do one more/one less unit?

what implications to the demand curve when a change in demand relationship can causes change to the quantity demand?

When a change in demand relationship causes change to quantity demand, it causes the demand curve to shift, left if the quantity demanded decreases and right if the quantity demanded increases

What are the implications to the demand curve, when a change in price will cause a change in quantity demanded (ceteris paribus)

This would cause shifts along the demand curve

What is a normative good?

A normative good refers towards a good, where it’s quantity demand increases when income increases and it’s quantity demand decreases when income decreases.

What is an example of a normative good?

Organic groceries, branded clothing, household appliances, etc.

What is an inferior good?

An inferior good is a good that’s quantity demand decreases as income increases and demand increases as income decreases

Example of inferior goods

Home brand goods, instant noodles, public transport, second hand goods, etc.

What are substitutes?

Substitutes are goods that can replace one another, if the price of one item increases, it can be replaced with other item

Examples of substitutes

Butter and margarine, Pepsi and coca-cola, public transport and driving

What are complements

Complements are goods that can be used together

Example of complementary goods

Cereal and milk, cars and petrol, printers and ink, shoes and socks etc.

What factors alter the quantity demanded at every price? (Shifting the demand curve)

Changes to income (normal and inferior goods), Substitutes and complements, Market size, Customer preference and expectations