econ201 - Overview Define Economics Define Microeconomics...

This preview shows page 1 - 4 out of 15 pages.

Micro Outline for Final 15:20 Overview Define Economics Define Microeconomics Define Market and Market Adjustment Circular Flow Model Drawing and explanation Production Possibility Frontier Drawing and explanation Demand v. Quantity Demanded, Supply v. Quantity Supplied Drawing Equilibrium explanation Endogenous shock/changes in variables DEMAND 4 Assumptions excess demand comparative static analysis and drawing of demand curve increase in demand, reaction in market
Essay 15:20 INTRO Microeconomics , the measure of the scarcity of resources such as raw materials, land, capitol, labor, education, and entrepreneurship, is one of the sub-fields of economics (differentiating society’s unlimited wants and needs). Economics includes four alternative systems which are tradition, altruism, command, and market. Microeconomics centers around a market economy , meaning it is organized around free interaction among various agents, driven by self-interest. Market economies are organized using a Circular Flow Model : DRAWING This demonstrates households supply labor and other factors of production to businesses and get paid by those businesses in the factor market. Businesses produce goods and services and sell them to households (and the government) in the goods market. Government ultimately taxes business and houses. It buys goods and services from businesses and buys labor services from households. Also the government provides tax revenue (giving back to individuals and redistributes income). Businesses/firms decide what to produce, how much, and for whom to produce it based on the market incentives. Due to the limitless wants of society in the economy, we use the Production Possibility Frontier to show the relationship between two separate goods (x,y) and their efficiency in selling the right quantity at the right price. DRAWING The point labeled scarcity on the outside of the curve represents the limitless wants of society that are unattainable. To explain the adjustments made in the market due to the continuous change in variables (Px, Py, tastes, income, expectations, # demanders, distribution of income), microeconomics uses Supply (a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant) and Demand (a schedule of quantities a consumers is willing to buy per unit of time at various prices, other things constant). DRAWING-label equilibrium and endogenous shock showing change in variables (price increase) When looking at the demand side, the measure of utility (the pleasure or satisfaction people get from consuming something) is important determining what people do. The four assumptions of demand using utility theory are: 1. Utility maximization: consumers act to maximize something (utility) that is important to them
Essay 15:20 2. Goods generate utility: As individuals increase their consumption of a good, at some point, consuming another unit of the product will simply not yield as much additional pleasure (marginal utility) as did consuming the previous good.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture