Microeconomics_midterm_1

Microeconomics_midterm_1 - Microeconomics: Midterm 1...

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Microeconomics: Midterm 1 Chapter 1: The economic perspective includes 3 elements: scarcity, choice, purposeful behavior, and marginal analysis. Individuals and institutions make rational decisions based on marginal costs and benefits. Scarcity = Lack of resources - Opportunity cost: to obtain more of one thing society forgoes the opportunity of getting the next best thing. - Utility: the pleasure, happiness, or satisfaction obtained from consuming a good or service. - Marginal analysis: comparisons of marginal benefits and marginal costs, usually for decision making. - Economic principle: a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions. - Other-things- equal assumption: the assumption that factors other than those being considered do not change. - Microeconomics: is the part of economics concerned with individual units such as a person, a household, a firm, or an industry. - Positive economics: focuses on facts and cause-and – effect relationships. Description, theory development, and theory testing. - Normative economics: incorporates value judgment about what the economy should be like or what particular policy actions should be recommended to achieve a desirable goal. - Economizing problem: the need to make choices because economic wants exceed economic needs. - Budget line: schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income. - Economic resources: all natural, human, and manufactured resources that go into the production of goods and services. - Factors of production: land, labor, capital, and entrepreneurial ability are combined to produce goods and services. - Consumer goods: satisfy our wants directly. - Capital goods: satisfy wants indirectly by making possible more efficient production of consumer goods.
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- Law of increasing opportunity costs: as the production of a particular good increases, the opportunity cost of producing an additional unit rises. The economic principle includes: scarcity and choice, purposeful behavior, and marginal analysis. Macroeconomics looks at the economy as a whole or its major aggregates. Microeconomics examines specific economic units or institutions. The optimal point of the production possibilities curve represents the most desirable mix of goods and is determined by expanding the production of each good until its marginal benefit(MB) equals its marginal cost(MC). Market Systems: Pure Competition – largest market. Monopoly – one seller, (anti-trust) law regulated monopoly. Oligopoly – few giant corporations. Monopolistic Competitions – trademarks monopolize through recognition. The Production Possibilities Curve:
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This note was uploaded on 06/26/2009 for the course ECON 205 taught by Professor Kamrany during the Fall '07 term at USC.

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Microeconomics_midterm_1 - Microeconomics: Midterm 1...

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