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Terms in this set (17)
Microeconomics deals with
individual decision makers in the economy
What is studied in macroeconomics?
The basic concern of microeconomics is
to study the choices people make
if the market for corn is in equilibrium
the price is set so that the quantity of corn produced is equal to the quantity of corn consumed
Describe the circular flow of market economy
Consumers have production factors such as labor and capital. They sell them in the factor market, where firms purchase them to produce goods and services. Firms produce goods and services, and sell them in the goods markets, where consumers buy them. The payments for goods from consumers to firms are revenues to firms; the payments for production factors from firms to consumers are income for consumers.
Describe an individual consumer in the market economy
A consumer is described with his/her consumption set, preference ordering, and initial endowments. A consumer set is a list of goods/services that he/she consumes. A preference ordering is consumer's preference on consumption sets. An initial endowment is a list of goods/services endowed when he/she was born. A consumer chooses an optimal consumption set that maximizes his/her satisfaction (happiness, or utility).
Describe an individual firm in the market economy
Producers maximize their own profits when they to their business. They purchase production factors such as labor and capital from consumers, and they produce goods/services to sell them in the goods/services market. They choose their optimal amount of factors (inputs) and optimal amount of products (outputs) that maximize the profits.
Explain briefly what the equilibrium of market is
The market equilibrium is the state where no one has an incentive to deviate from the state. The quantity demanded is exactly the same with the quantity supplied. Nothing has to be changed. The market equilibrium is achieved only if the price of good is at the equilibrium price.
If two variables are positively related, on a graph they would be represented by
a line or curve that slopes upward
if two variables are negatively related
as one goes up in value, the other must go down in value
law of demand
a negative relationship between quantity demanded and price
illustrate the law of demand
consumers buy more personal computers because prices have fallen
a shift of the demand curve for thin-crust pizza would NOT be caused by change in
the price of thin crust pizza
if goods A and B are substitutes, a decrease in the price of good B will
decrease the demand for good A
If goods A and Z are complements, an increase in the price of good Z will
decrease the demand for good A
A beneficial technological change is developed in the production of cranberries. At the same time, scientists discover that cranberries have significant health benefits. This will result in
an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cranberries
Gasoline, a derivative of oil, is a large part of transportation costs for many producers. If the price of oil increases at the same time that incomes fall for many consumers, one would expect the equilibrium price of many normal goods to ______________, while their equilibrium quantities would ___________________.
fall, rise, or stay the same; decrease
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