Microeconomics Review

Positive Statement

A statement that can be tested and validated.Describes "what is"

Supply Schedule

A table representing the relationship between the price of a good and the quantity supplied

Demand Schedule

A table representing the relationship between the price of a good or service and the quantity demanded.

Direct Incentives

Easy to recognize incentives. Example: Do my micro homework and I'll give you my Ipad

When the Demand Curve shifts to the right and Supply stays constant

Equilibrium Price and Quantity increase

When the price of a complement good increases

Equilibrium Price decreases due to a demand shift

When Supply shifts right and Demand shifts left

Equilibrium Price decreases. Equilibrium Quantity is indeterminate

When taxes are placed on a good

Equilibrium Price increases

When the price of an input rises

Equilibrium Price increases and Equilibrium Quantity decreases

When Both Supply and Demand shift to the right

Equilibrium Quantity increases. Equilibrium Price is indeterminate

Monopoly

Exists when a single company supplies the entire market for a particular good or service

Competitive Market

Exists when there are so many buyers and sellers that each has only a small impact on the market price and output

Incentives

Factors that motivate a person to act or exert effort

Consumer goods

Goods produced for present consumption

Capital Goods

Goods that are produced today in order to make other valuable goods and services in the future

The Law of Increasing Relative Cost

The opportunity cost of producing a good rises as society produces more of it

Equilibrium

The point at which the supply and demand curves intersect

Investment

The process of using resources to create or buy new capital

Comparative Advantage

The situation where an individual, business or country can produce at a lower opportunity cost than a competitor can.

Economics

The study of how people allocate their limited resources to satisfy their nearly unlimited wants

Microeconomics

The study of the individual units that make up the economy

Macroeconomics

The study of the overall aspects and the working of the economy

Market Demand

The sum of all the individual quantities demanded by each buyer in the market at each price

Market Supply

The sum of quantities supplied by each seller in the market at each price

Trade

The voluntary exchange of goods and services between to or more parties

Inferior Good

A good that increases in demand when income decreases

Normal Good

A good that increases in demand when income increases

Normal Good

A good that increases in demand when income increases. The opposite of an inferior good.

Imperfect Market

A market in which either the buyer or the seller has an influence on the market price

Production Possibilities Frontier

A model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently.

Equilibrium Price

AKA: Market Clearing Price. The price at which the quantity supplied is equal to the quantity demanded

The Law of Demand

All other things being equal, quantity demanded falls when prices rise and quantity demanded rises when prices fall

Normative Statement

An opinion that cannot be tested or validated.Describes "what ought to be"

Negative Incentives

Incentives that encourage action with a negative consequence Example: Speeding tickets

Positive Incentives

Incentives that encourage action with a positive consequence Example:Extra credit for course evaluations

Indirect Incentives

Not so easy to recognize incentives Example: Welfare being a safety net for the unemployed may motivate them to stay unemployed if it pays more than a job

Shortage

Occurs whenever quantity supplied is less than quantity demanded. When this happens the Equilibrium Price rises

Surplus

Occurs whenever the quantity supplied is greater than the quantity demanded.When this happens the equilibrium price lowers

Absolute advantage

Refers to the ability of one producer to make more than another producer with the same quantity of resources.

Scarcity

Refers to the limited nature of society's resources, given society's unlimited wants and needs

Equilibrium Quantity

The amount at which the quantity supplied is equal to the quantity demanded

Quantity Demanded

The amount of a good or service that buyers are willing and able to purchase at the current price

Consumer Surplus

The area above the market price and below the demand curve

Producer Surplus

The area above the supply curve and below the market price

Ceteris Paribus

The concept under which economists examine a variable holding all else constant

Opportunity Cost

The highest valued alternative that must be sacrificed in order to get something else

The Law of Supply and Demand

The market price of any good will adjust to bring the quantity supplied and quantity demanded back into balance

Endogenous factors

Variables that can be controlled in a model

Exogenous Factors

Variables that cannot be controlled for in a model

Markets ____

bring buyers together to exchange goods and services

Economic Thinking __

requires a purposeful evaluation of the available opportunities to make the best decision possible

Marginal Thinking ___

requires decision makers to evaluate whether the benefit of one or more units of something is greater than its cost

In a market economy ________

resources are allocated among households and firms with little or no government interference

What can changes in population do?

shift the demand curve of a good or service in an area.