MICRO Economics

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  1. Microeconomics
    Studying supply, demand, price, and industry.
  2. Macroeconomics
    Many things need to come together in order for the nation to come together such as GDP, Trade, debt and etc.
  3. WHy do we have economic problems?
    Due to scarcity
  4. What 4 things are required in an economic growth that can solve the issue of scarcity?
    • Labor (Train & educ, Food, Healthcare, Housing Law & Order)
    • Capital ($, investments, machinery, venture capitalists)
    • Land
    • Entrepreneurial Spirit
  5. Positive Economics:
    • Is something that you can test.
    • Hard Facts back it up.
    • It is a science
    • Has a cause & effect
  6. Negative Economics
    • Personal Bias
    • Emotions / Feelings involved
    • No facts / All junk
  7. Who controls the Fiscel Policy:
    What is it?
    • Congress
    • Regulations of Govt Spending & IRS Tax Laws
  8. Who controls the Monetary Policy:
    What is it?
    • Federal Reserve Bank
    • In charge of printing $ & Controls Banks
  9. Can the president order to change the fiscel or monetary policy?
  10. What is the Keynesian Formula?
    1/1-MPC x (1-Tax Rates) x C + I + G  +E/-I  = GDP
  11. What is the Keynesian formula & what does everything represent?
    1/1-MPC x (1-Tax Rates) x C + I + G  +E/-I  = GDP

    • MPC= Marginal Propensity to Consume (avg american spends .95-.99%)
    • C= Consumer Spending (2/3 of economy)
    • I= Investment Spending (Busin, Housing, Social Invest.)
    • G= All of Govt Spending (State, Federal, Local)
    • GDP= Gross Domestic Prod.(ALL goods/services your economy has prod)
  12. When is market equilibrium met?
    When supply & demand curve intersect.
  13. Law of demand:
    • Lower Price = More Sold
    • Higher Price = Less Sold
  14. Law of Supply =
    Price must go up if more goods are to be offered
  15. Price x Quantity = __________
    Total Revenue
  16. What is the supply curve dependent on?
    • Cost producing of goods or services
    • Anticipated Market Price & total revenue
    • Availability of land, labor, capital, & entrprenuial spirit
  17. Economics is the study  of...........
    of how people manage their resources
  18. Give an example of an carl marx type of idea?
    Ex: CEO's make too much and steal from the bottom workers.
  19. Rasing Taxes =
    Lowering Taxes =
    • Rasing Taxes = Lowers Economic Growth
    • Lowering Taxes = Rasies Rconomic Growth
  20. What is negative externality and is an example of what?
    • Negatively Externality (air pollution, child labor, or traffic jams.)
    • IS an example of a market failure
  21. What are some govt intervention methods to remedy market failure?
    • 1. Direct regulation or pass new laws
    • 2. Impose Taxes
    • 3. Provide subsidies
    • 4. Provide a public good (ex GPS)
  22. The point where demand curve and supply curve is called?
    Market Equilibrium.
  23. What is a price ceiling and what does it typically cause?
    • when price is set below market equilibrium.
    • kuz ppl don't produce it anymore because they don't make money.
  24. What is a price floor and what does it typically cause?
    when price is set above market equilibrium.

    Price floors typically create surpluses of better service and more goods.
  25. Normal Goods:
    As income goes up so does consumption of lavish goods and services. (ex: steak & sushi)
  26. What is an Inferior Goods:
    Is a good in which consumption decreases in response to an increase in income (hot dogs, top ramen, instant noodles)

    Also, the demand for an inferior good will rise if the income decreases.
  27. Example of demand curve for technology:
    Technology: Laptops have improved in power & size over the last few years so the demand curve shifted to the right. So the demand curve for desktops has shifted to the left.
  28. Interrelationship With other products
    As computer sales increase, the demand for access to the internet shifts to the right as well.
  29. Consumer Surplus:
    • Although the consumer is willing to pay more for the good or service, the market price is a bargain. Consumer feels like they are getting a
    • bargain.
  30. Producer surplus:
    Producer willing to accept less for his goods or services but the market is willing to pay more. Producer feels as if he hit the jackpot on the deal.
  31. If the quantity demanded changes a great deal due to a change in price, then demand is ______________.
    Elastic (flat)
  32. If the quantity demanded changes an only slightly due to a larger change in price, then demand is _________
    (you GOTTA have it it is a necessity).
    (Graph = ________)
    • Inelastic
    • Graph = More steep
  33. What is an example of an Inelastic Item?
  35. What is the elasticity formula referred to as?

    If the elasticity result >1, then the demand is __________ (flat, cannot increase price with
    If the elasticity result <1, then the demand is _______ (steep, can increase price with this)

    If the elasticity result =1, then its _______ (Ex: if raise Class
    price by 20% and lose 20% of students then this occurs)
    Price elasticity of demand or aka "simple formula"

    Price elasticity of demand = % change in quant demanded / % change in price

    • Elastic
    • Inelastic
    • Unitary Elastic
  36. What is a better and more accurate formula that the Price Elasticity of demand formula?

    What do both have in common?
    • Midpoint Formula
    • Determines the Price Elasticity of Demand

    • NewQ – OldQ
    • _____________
    • (NewQ + OldQ)/2
    • __________________________
    • NewP – OldP
    • _____________
    • (NewP + OldP) / 2
  37. What is elasticity?
    The Responsiveness of Demand & Supply

    simply measures how much one economic variable responds to changes in another economic variable
  38. There are MANY things that need to be researched in order to FULLY understand the demand for a good or service. List or name a few:
    • Customer demographics (age, education, ethnicity
    • Monthly or annual Income
    • Past sales history
    • Consumer expectations and customer reviews
    • Various price combinations vs quantity sold
    • Prices offered by competitors
    • Price, income,  and cross-price elasticity research
    • Other value strategies offered by competitiors 2 for 1 offers
    • New technology – Online banking via your cell phone
    • Strength of Local Economy
    • Macroeconomics Factors – unemployment rate/consumer confidence
    • Iternational Competition & vaue of US dollars
    • GOV price controls & regulations
  39. Medicaid System
    General office visit may be $500 but the government set a price ceiling for $24 to the doctor per office visit for Medicaid.

    This is an example of price ceiling.
  40. Complementary Goods:
    If the items are complementary (cars & tires) consumed hand-in-hand with each other and their demand curves will move together in the same direction.
  41. Substitute Goods:
    Pepsi vs coke example then the demand curves for these products will move in the opposite direction.
  42. Opportunity Costs
    The amount of other products sacrificed to produce a unit of a product.

    The sacrifice is the opportunity cost of the choice
  43. Utility
    Satisfaction obtained from consuming a good
  44. Marginal Analysis
    • comparisons of marginal benefits and marginal costs, usually for decision making.
    • Marginal means extra or change in.
  45. Scientific Method (5 Steps)
    • Observe behavior & Outcomes
    • Formulate hypothesis
    • Test Hypothesis
    • Accept Reject or Modify Hypothesis
    • Hypothesis eventually becomes Theory
  46. A widely accepted theory is referred to as?
    Economic Principle.
  47. Ceteris Paribus means?
    All Other things remain constant
  48. Aggregate
    is a collection of specific economic units treated as if they were one unit.

    Ex: lump a millions of consumers in us economy and treat them as one unit called consumers.
  49. The economic perspective stresses what 3 things?
    • scarcity and the necessity of making choices
    • Assumption of purposeful behavior
    • Comparison of Marginal Benefit and marginal cost
  50. Budget Line
    Shows all combinations of any two products that can be purchased given prices of products and consumer $ income.
  51. Capital
    Includes all manufactured aids used in producing consumer goods or services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery.
  52. What are the factors of production?
    • Land
    • Labor
    • Capital
    • Entrepreneurial Spirit
  53. Full employment is when
    Economy is employing all of its available resources
  54. What does a production possibilities curve show?
    Different combinations of goods and services that society can produce in a fully employed economy assuming fixed availability of resources and technologies.
  55. Law of increasing opportunity cost
    AS the production of particular good increases, the opportunity cost of producing an additional unit rises.
  56. MB > MC = Good & Pursue
    MC > MB = Not Good
  57. Economic growth is the result of 3 things:
    • 1) increase of supplies of resources
    • 2) improvements in resource quality
    • 3) technological advances
  58. Command system
    • Aka Socialism or COmmunism
    • Gov owns most property, resources, and economic decision making.
  59. Market System
    What 3 things make the market system work?
    • Or capitalism
    • Private ownership of resources and the use of markets and prices to coordinate and direct economic activity.

    Private property Ownership & Freedom of Enterprise and freedom of choice
  60. Laissez-faire
    Means let it be that is keep government from intervening with economy.
  61. Specialization
    • Specializing in one or few things instead of trying to do everything and lose efficiency.
    • Specialization also saves time.
  62. Barter creates a problem....
    • It requires Coincidence of wants.
    • If there is no similar want then there is no exchange.
  63. Consumer Sovereignty
    Consumers are in command in letting producers know (through dollar votes) what is in demand and what will produce a profit.
  64. There is a ___________ relationship between _______ and ________ demanded.

    This relationship is called?
    • Negative / Inverse
    • Price & Quantity
    • The Law of Demand
  65. What is the income effect?
    Lower price increases the purchasing power of the consumer and vice versa.
  66. Price goes on the ____ axis.
    Quantity goes on the ___ axis.
    • X
    • Y
  67. What are Determinants of Demand
    Are assumed to be constant and include every other aspect that may influence purchases.
  68. A shift in the demand curve is called?
    Change in demand
  69. Superior or Normal goods
    • Demand varies directly with money.
    • Ex: steak & lobster dinners / Cruises
  70. Inferior Goods
    Goods whose demand varies inversely with $.

    AS $ decreases.... Top ramen increases.
  71. The demand curve can shift due to:
    • Changes in
    • consumer taste
    • # of buyers in market
    • Consumer Income
    • The Price of substitute or complementary goods
  72. A change in demand is  _________
    A change in quantity is ___________
    is a shift of demand curve

    Movement from one point to another on DC
  73. What are the determinants of supply?
    Either one of these can move the supply cure left or right.
    • 1. Resource Prices
    • 2. Technology
    • 3. Taxes & Subsidies
    • 4. Prices of other goods
    • 5. Producer Expectations
    • 6. # of sellers in market
  74. CHange in quantity supplied....

    Change in supply ....
    is a movement from one point to another on a fixed supply curve.

    Change in supply means a shift  of the curve.
  75. What do surpluses do?
    Drive prices down
  76. When there is not a shortage of "corn" nor a surplus of corn .... what is this referred to as?
    Equilibrium quantity
  77. Productive efficiency
    The production of any particular good in the least costly way.
  78. Supply increase and Demand Decrease.....
    Will Decrease price of good
  79. Supply Decrease and Demand Increase....
    Will Increase price of product.
  80. Supply increase and demand increase.....

    Review Page 60 Chart
    Supply increase drops price and demand increase increases it.....
  81. Page 60 Chart
  82. Determinants of price elasticity of demand
    • 1. Substitutability
    • 2. Income
    • 3. Luxury vs Necessity
Card Set:
MICRO Economics
2014-03-10 08:41:38
MICRO Economics

MICRO Economics
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