Micro

Micro economics exam

the four factors of production

time, capital, land and labor

time

the number of day minutes or hours you have

capital

money and the stuff it buys

economy

the allocation of scarce resources

economics

the study of an economy

scarcity

not having enough resources to supply everyone's wants and needs

labor

who can work and how one can allocate resources

two kinds of products

goods and services

opportunity cost

is the next best use of a resource

idle resources

when resources could be used, but are not being used

marginal analysis looks at

the cost of adding one more product

variable cost

is a cost that changes with production
example: how much materials will cost

what causes quantity supplied to change?

price

law of demand

states that as the price goes up the quantity supplied goes down. they are inversely related

marginal utility

satisfaction of each additional unit of something

fixed cost

a cost that does not change with production
example: electricity

elastic demand

smaller change in price generates a larger change in quantity demanded. example: something like a house it is nonessential

elasticity

elasticity is when a small change in price results in a large change in the quantity demanded

substitutes

are similar alternatives.
two goods for which an increase in the price of one leads to an increase in the demand for the other

compliments

are two goods that are bought and used together.
two goods for which an increase in the price of one leads to a decrease in the demand for the other

factors that impact demand

substitutes, consumer taste, expectations, more people and consumer income

on an elastic demand graph, what happens to price and quantity when a normal supply curve increases?

price will decrease & quantity will increase

quantity supplied changes due to

price

price

monetary value at an exchange

substitute effect

prices are relative
example: if jiffy goes up, then skippy will look cheaper

income effect

you feel like you have more money resulting in you more.
example: buy 10 tacos get 7 free, makes you feel like you are spending less

two causes of supply change

productivity and cost of production

wage

price of labor

what do imposed benefits do to the employer

increase the cost of employing someone

minimum wage creates a

price floor

largest labor union in USA

public employees union

a price floor for wages above equilibrium means

fewer people are hired than otherwise would be

productivity

amount of product being produced relative to the worker

consumer

when income goes up so does demand

unit elasticity

demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or supplied is equal to the percentage change in price

inelastic on graph

steep slope/more vertical

elastic on graph

more horizontal

inelastic demand

a change in price will not significantly affect the demand for product example: more essential things; foods

demand

is the desire, the willingness and the ability to buy a product

diminishing marginal utility

decrease in satisfaction or usefulness from having one more unit of the same product (less willing to buy each additional item)

causes of elasticity

1. how essential
2. can it be delayed
3. portion of income it uses
4. substitutes

more essential

inelastic

less essential

elastic

law of supply

there is a direct relationship between price and quantity supplied

what cause a change in supply?

cost of production, productivity, technology, taxes, subsides, expectations, government regulations or number of sellers

supply

the amount of product that would be offered for sale at all possible prices that could preval in the market

rationing

governmental service of allocating goods and resources with out prices

prices

are nuetral and convey information to both consumer and seller

subsides

is a broad classification of things that behave the same way, it is a government incentive to allocate resources

surplus

situation in which the quantity supplied is greater than the quantity demanded at any given price

shortage

Situation in which the quantity supplied is less than the quantity demanded at any given price

price ceiling

maximum legal price that can be charged for a product

price floor

lowest legal price that can be payed for a good or service

deficiency payment

cash payment making up the difference between the market price and the target price

total revenue

price x quantity

do income and wealth measure the same things?

no

income

is the amount of money coming in usually in a year

wealth

is the value that people possess in the things they have

have the types of skills valued by employers changed little over the last 100 years?

yes they have

household income

is the income every of everyone in houses income combined

individual income

is the income of one individual person

inequality of pay between men and women is because of

the differences in types of work and work habits between men and women

is discrimination against women in competitive labor markets common?

no because it is costly

minimum wage laws increase the cost of discrimination to the employer

false

discrimination

is discriminating against someone due to race or sex is usually costly and not worth it. more likely to occur if you are not spending the money and someone else is.

the growing importance of education and skills in a labor market has increased economic inequality
between those with education and skills and those
without

true

growing economy causes an

increase in income inequality between employed & unemployed

cheap labor

less capital to replace labor

expensive labor

more capital to replace labor

efficiency

is outputs to compared to inputs

most common business form in USA, most freedom to make decisions, & easiest to start

sole proprietorship

business with easiest managements

sole proprietorship & partnership

can declare bankruptcy without owners being liable

multinational, conglomerate, non-profit, corporation

business with unlimited life

partnership & corporation

a business that pays income taxes only with the individual who owns

partnership, sole proprietorship

business with largest revenue in USA and has the most government regulation but is also the most expensive to start

corporation

type of business that pays no taxes

non profit

conglomerate

a business that owns a variety of individual firms that produce diverse products and services

spans over many national borders

multinational

partnership

business where if one owner fails the other owners are liable

business established by a charter

non profit and corporation

common stock

represents the basic ownership of a corporation. the significance of this is that shareholders received a vote which elects the board of directors.

vertical merger

companies buy other companies unlike their own but are in the production process.

horizontal merger

in a horizontal merger, a company buys a company that is similar.

preferred stock

preferred stock represents non-voting ownership shares of the corporation.

consumer cooperative

is a voluntary association that buys bulk amounts of goods such as food or clothing on behalf of its members one example of this is electric
companies or credit unions

governments direct participation in economy

by producing and distributing goods and services to consumers

governments indirect participation in economy

when it acts as an empire to help the market economy operate smoothly and efficiently.

market

place where exchange happens

what's the primary factor of a market?

competition

perfect competition

when it's functioning at equilibrium

factors of competition

1. Number of buyers and sellers
2. Independence of buyers and sellers
3. Similarity of product
4. Knowledge of buyers and sellers
5. Freedom to enter and exit

more buyers =

more competition

more similar product =

more competition

product differentiation

the difference between products in the same industry example: brand lima beans vs. kroger brands

competition

is efficient allocation of resources

monopoly

market with a single seller of a particular product, example: water treatment

oligopoly

market structure in which a few large sellers dominate an industry

natural monopoly

when a market is best served by a monopoly bc it doesn't make sense for it to have more then one producer

economy of scale

when a company functions better at a larger scale because the cost of production gets cheaper as the business grows