MICRO ECONOMICS CHAPTER 1

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economics
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the study of how individuals, firms, and society make decisions to allocate limited resources to many competing wants
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incentives
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the factors that motivate individuals and firms to make decisions in their best interest
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microeconomics
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the decisions making by individuals, businesses, industries, and governments
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macroeconomics
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the broader issues in economics, such as inflation, unemployment, and national output of goods and services
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ceteris paribus
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assumption used in economics (and in other disciplines as well), where other relevant factors or variables are held constant
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efficiency
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how well resources are used and allocated. Do people get the goods and services they want at the lowest possible resource cost? This is the chief focus of efficiency
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equity
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the fairness of various issues and policies
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positive question
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a question that can be answered using available information or facts
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normative question
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a question that is based on societal beliefs on what should or should not take place
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opportunity cost
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the value of the nest best alternative; what you give up to do something or purchase something
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laissez-faire economy
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a pure market economy in which individual households and firms determine the allocation of resources and government play an extremely limited role, primarily in enforcing property rights through a legal system and providing for a common defense
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command economy/ central command economy
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economy in which a single individual or small group of individuals determines the allocation of resources, and individuals have little say over what is produced, how goods are produced, and the distribution of these goods
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mixed economy
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economy in which government plays a more active role in the market process, including regulation, standardization, taxation, and income redistribution; households and firms still have some control over what is produced, how it is produced, and the distribution of these goods but the government also influences these decisions
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market
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a mechanism that facilitates the exchange of specific scarce resources amongst competing agents;
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goods markets and factor markets
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2 major types of markets
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land, labor, and capital
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3 major factors of production
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microeconomics
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the study of individual markets, how individual agents interact within those markets and how individual economic agents make decisions
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marcoeconomics
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the study of national and global economic activity
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economic model
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a simplified view of reality; comprised of 2 parts : assumptions and implications
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rationality, preference, and local non satiation
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What are the 3 basic assumptions of economic models?
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rationality
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agents do what is in their best interest given the information they have at the time of their decision
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preference
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given Choice A and Choice B, agents prefer Choice A to Choice B, Choice B to Choice A, or are indifferent between Choice A and Choice B
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local non satiation
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within a certain range, agents prefer more of a good to less of a good

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