Microeconomics Chapters 1-3 2023 with complete solution questions and answers

Markets a group of buyers and sellers with the potential to trade with one another Aggregation the process of combining distinct things into a single whole (general whole) EX: all computers, all laptops Circular Flow a simple model that shows how goods, resources, and dollar payments flow between households and firms Product Market markets in which firms sell goods and services to households Resource Market markets in which households that own resources sell them to firms Imperfectly Competitive Market markets where individual buyers or sellers can control or influence the price Perfectly Competitive Market markets where NO buyer or seller has the power to influence the price -each buyer and seller has the market price as given Quantity Demanded the quantity of a good that all buyers in a market would choose to buy during a period of time, given their constraints The Law of Demand as the price of a good increases, the quantity demanded decreases; when price falls, quantity rises -CETERIS PARIBUS: when everything else (all other influences) remain unchanged Ceteris Paribus Latin expression for "all else remaining the same" -when everything else (all other influences) remains unchanged Demand Schedule a list showing the quantities of a good that consumers would choose to purchase at different prices, with all other variables held constant Demand Curve a graph of a demand schedule -a curve showing the quantity of a good or service demanded at various prices, with all other variables held constant -downward slope Shifts of Demand Curve a change in any variable that affects demand (except for price) -Change in Demand Movements Along Demand Curve increase or decrease in price -Change in Quantity Demanded Change in Quantity Demanded a movement along a demand curve in response to a change in price Change in Demand a shift of a demand curve in response to a change in some variable other than price Income the amount of $ that a person or firm earns over a particular period Normal Goods a good that people demand more of as their income rises Inferior Goods a good that people demand less of as their income rises Wealth the total value of everything a person or firm owns, at a certain point in time, minus the total amount owed Substitute a good that can be used in place of some other good and that fulfills more or less the same purpose EX: using jam; not honey -increase--shifts demand curve right Complement a good that is used together with some other good EX: pancake mix and maple syrup -increase--shifts demand curve left Facts that Shift the Demand Curve -income -wealth -prices of related goods -population -expected price -tastes -other shift variables Quantity Supplied the specific amount of a good that all sellers in a market would choose to sell over some period, given their constraints Law of Supply as the price of a good increases, CETERIS PARIBUS, the quantity supplied increases -opposite of Law of Demand Supply Schedule a list showing the quantities of a good or service that firms would choose to produce and sell at different prices, with all other variable held constant Supply Curve a graph of a supply schedule, showing the relationship between the price of a good and the quantity supplied int he market (at various prices) -each point represents the quantity that sellers would choose to sell at a specific price -upward slope Change in Quantity Supplied a movement along a supply curve in response to a change in price Change in Supply a shift of a supply curve in response to a change in some variable other than price Factors that Shift the Supply Curve -input prices -price of alternatives -technology -# of firms -expected price -changes in weather and natural events -other shift variable Alternate Goods other goods that firms in a market could produce instead of the good in question EX: making maple sugar or wood instead of maple syrup Alternate Market a market other than the one being analyzed in which the same good could be sold Technological Advance occurs in production when a firm can produce a given level of output in a new and cheaper way than before Equilibrium Price and Equilibrium Quantity values for a price and quantity in the market that once achieved will remain constant--unless and until the supply curve or demand curve shifts Excess Demand at a given price, the amount by which quantity demanded exceeds quantity supplied -buyers would compete to get more good available and would offer to pay a higher price -causes prices to rise Excess Supply at a given price, the amount by which quantity supplied exceeds quantity demanded -sellers would compete to sell more goods than buyers wanted to buy, and price would fall -causes prices to decrease Equilibrium on a Graph where the 2 curves cross 3-Step Process 1. characterize the market 2. find the equilibrium 3. what happens when things change Production Possibilities Frontier (PPF) a curve showing all combinations of 2 goods that can be produced with the resources and technology currently available Law of Increasing Opportunity Cost the more of something we produce, the greater the opportunity cost of producing even more of it -causes the PPF to have a concave shape, Productive Inefficiency a situation in which more of at least one good can be produced without sacrificing the production of any other goods -puts us inside our PPF Recessions a slowdown in overall economic activity -why an economy might operate inside a PPF Economic System the way our economy is organized Specialization a method of production in which each person concentrates on a limited # of activities Exchange the act of trading with others to obtain what we desire Comparative Advantage the ability to produce a good or service at a lower opportunity cost than other producers Absolute Advantage the ability to produce a good or service using fewer resources than other producers use Resource Allocation deciding how society's scarce resources will be divided among competing claims and desires 3 Types of markets -traditional -command -market Traditional Economy an economy in which resources are allocated according to long-lived practices from the past -stable/predictable economies, but stagnant economies Command (Centrally Planned) Economy an economic system in which resources are allocated according to explicit instructions form a central authority -bad Market Economy an economic system in which resources are allocated through individual decision making -most popular Market a group of buyers and sellers with the potential to trade with each other Price the amount of $ that must be paid to a seller to obtain a good or service -not the same as cost Market Capitalism -complete label for market economies -refers to one way that resources are owned -CAPITALISM (private) and SOCIALISM (state) Invisible Hand private resource owners are guided by an "invisible hand" Mixed Economy a market economy in which the government also plays an important role in allocating resources Sunk Cost price "sunk" over a decision Economics the study of how people choose/make decisions about how to use resources under conditions of scarcity :study of choices related to production and distribution 3 Branches of Microeconomics -Certainty and rationality ( Neoclassical Microeconomics) -Uncertainty derived from imperfect information (Institutional Economics) -Uncertainty derived from irrationality (Behavioral Economics) Keynesian Microeconomics ? Resources inputs that can be used to produce goods/services -land/natural resources, labor, capital, entrepreneurship Scarcity results from competing uses Opportunity Cost measures the value of benefits associated with the path not taken -the value of resources used to generate benefits in the path not taken -the consequence of tradeoff, forced into a choice by scarcity Opportunity Cost= Explicit cost + Implicit cost Sunk Cost costs that have already been born -cannot be changed making them -irrelevant to decision and as a resold -should be ignored Marginal Cost -Incremental cost -the change in costs associated with the change in whatever we're doing Incremental Cost change in cost (and benefits) when we decide to use our resources differently Economics the study of choice under conditions of scarcity Scarcity a situation in which the amount of something available is insufficient to satisfy the desire for it Opportunity Cost what is given up when taking an action or making a choice -the next best option Explicit Cost the $ sacrificed (and actually paid out) for a choice Implicit Cost the value of something sacrificed with no direct payment is made The Four Resources -Labor -Capital -Land -Entrepreneurship Resources the labor, capital, land, and entrepreneurship that are used to produce goods and services Labor time humans spent producing goods and services Capital any long-lasting tool that is itself produced and helps us make other goods and services Physical Capital the part of the capital stock consisting of physical goods (machinery, equipment, factories) Human Capital the skills and training of the labor force Capital Stock the total amount of capital in a nation that is productively useful at a particular point in time Land the physical space on which production takes place, as well as the natural resources that come with it Entrepreneurship the ability and willingness to combine labor, capital, and clans into a productive enterprise Individual opportunity cost arises from... scarcity of time and money Society's opportunity cost arises from... scarcity of resources Microeconomics the study of the behavior of individual households, firms, and governments; the choices they make; and their interaction in specific markets Macroeconomics the study of the behaviors of the overall economy Positive Economics the study of how the economy works Normative Economics the practice of recommending policies to solve economic problems Why do economists disagree about policy? -disagreement is based on positive economics (our knowledge of how the economy works is imperfect) Why study economics? -to understand the world better -to achieve social change -to help prepare for other careers -to become economists Models an abstract representation of reality Simplifying Assumption any assumption that makes a model simper without affecting any of its important conclusions Critical Assumption any assumption that affects the conclusions of a model in an important way