Microeconomics Lecture Notes

Flashcards created based on lecture notes for review in Microeconomics.

What are normal goods?

Normal goods are those whose demand increases as consumer income rises.

What are inferior goods?

Inferior goods are those whose demand decreases as consumer income rises, examples include Top Ramen and used cars.

What is the equilibrium on supply and demand graphs?

It is where the supply and demand curves intersect.

What equals a surplus?

A surplus occurs when quantity supply is greater than quantity demand.

What equals a shortage?

A shortage occurs when quantity demand is greater than quantity supply.

How does the free market fix a disequilibrium?

The invisible hand helps the market reach equilibrium.

What is voluntary exchange?

Voluntary exchange is the act of buyers and sellers making a market transaction.

What does a tax do to supply and demand?

A tax decreases both supply and demand.

What does a subsidy do to supply and demand?

A subsidy increases both supply and demand.

What is elasticity?

Elasticity refers to how consumers will buy more when prices go down and less when prices go up.

What are inelastic goods?

Inelastic goods include gas, milk, and medical care, shown by a steep (almost vertical) line on a graph.

What are elastic goods?

Elastic goods include soda, real estate, and pizza, shown by a flat (almost horizontal) line on a graph.

What is the Law of Demand?

The Law of Demand states there is an inverse relationship between price and quantity demanded.

What is the law of supply?

The law of supply states that as price goes up, quantity supplied goes up, indicating a positive relationship.

Which way does a demand curve slope?

The demand curve slopes downward.

Which way does a supply curve slope?

The supply curve slopes upward.

What are the five shifters for demand?

The five shifters for demand are taste and preferences, number of consumers, price of related goods, income, and future expectations.

What are the five shifters for supply?

The five shifters for supply are prices/availability of inputs, number of sellers, technology, government action, and expectations of future profit.

What does an increase in price do to the supply curve?

An increase in price does not shift the curve; it only moves along the curve, up and to the right.

What does an increase in price do to the demand curve?

An increase in price does not shift the demand curve; it only moves along the curve, down and to the left.

What is ceteris paribus?

Ceteris paribus means all other things held constant.

What are substitutes?

Substitutes are goods used in place of one another.

What are compliments?

Compliments are two goods that are bought and used together.

What is the minimum legal price a seller can sell a product?

This is referred to as a price floor.

What are regulations?

Regulations are rules and guidelines created by the government that can increase business costs.

What are the different types of costs?

The different types of costs are fixed, variable, total, and marginal costs.

How do you calculate Marginal Costs?

Marginal Costs are calculated by the change in total cost divided by the change in quantity.

What is the profit maximizing rule?

The profit maximizing rule is when marginal cost equals marginal revenue.

How do you calculate profit and total revenue?

Total revenue is calculated as price multiplied by quantity, and profit is total revenue minus total cost.

What are economies of scale?

Economies of scale refer to the ability of firms that produce more to use mass production techniques and specialization more effectively.

What are sunk costs?

Sunk costs are expenses that have already been incurred and cannot be recovered.

What are the four market structures?

The four market structures are perfect competition, monopolistic competition, oligopoly, and monopoly.

What are barriers to entry?

Barriers to entry are obstacles that make it difficult for new companies to enter a specific market or industry.

What are the 3 types of business structures?

The three types of business structures are sole proprietorship, partnership, and corporation.

What are the pros and cons of a sole proprietorship?

Pros: Quick and easy, complete control. Cons: Unlimited personal liability, hard to raise money.

What are the pros and cons of a partnership?

Pros: Ease of start-up, shared decision making. Cons: Potential for conflict, partners are bound by each other's actions.

What are the pros and cons of a corporation?

Pros: Potential growth, can borrow money. Cons: Difficulty of startup, double taxation.

What is an S-corporation?

An S-corporation has limited liability and a certain amount of stocks with some control.

What is a business franchise?

A business franchise operates independently but must report back to the parent corporation.

What is a nonprofit?

A nonprofit is an organization not aimed at making a profit, focusing instead on helping others.