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Introductory Microeconomics Principles
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Introductory Microeconomics Principles
Introductory Microeconomics Principles
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1
Question
What defines economics according to the notes?
Page 1
Answer
Study of how societies use scarce resources to produce valuable commodities and distribute them.
2
Question
What distinguishes microeconomics from broader economics?
Page 1
Answer
Behavior of individual economic units (consumers, workers, firms) and the markets they comprise.
3
Question
How does positive analysis differ from normative analysis?
Page 1
Answer
Positive asks 'What IS?' (cause-effect, testable). Normative asks 'What OUGHT to be?' (value judgments).
4
Question
What is the role of economic theory?
Page 1
Answer
Explains observed phenomena and predicts behavior.
5
Question
What defines an economic model?
Page 1
Answer
Simplified representation of a real situation, evaluated empirically.
6
Question
What is a market in economic terms?
Page 2
Answer
Collection of buyers and sellers that determine the price of a product through actual or potential interactions.
7
Question
What determines the extent of a market?
Page 2
Answer
Geographic and product boundaries set by arbitrage and substitutability.
8
Question
What is arbitrage in markets?
Page 2
Answer
Buying at low price in one location, selling at higher price in another.
9
Question
How does market price differ in perfectly versus imperfectly competitive markets?
Page 2
Answer
Perfectly competitive: single prevailing price. Imperfectly competitive: price averaged across brands.
10
Question
What is the formula for real price adjustment using CPI?
Page 2
Answer
\[\text{Real Price} = \frac{\text{CPI}_{\text{base year}}}{\text{CPI}_{\text{current year}}} \times \text{Nominal Price}_{\text{current year}}\]
11
Question
What was the real minimum wage in 2007 using 1990 dollars from the example?
Page 2
Answer
$3.69, calculated as (130.7 / 207.342) × 5.85.
12
Question
What shows quantity demanded at each possible price with other factors constant?
Page 2
Answer
Demand curve.
13
Question
What causes movement along the demand curve?
Page 2
Answer
Change in price of the good.
14
Question
What factors cause a shift in the demand curve?
Page 2
Answer
Change in income, tastes, prices of related goods, expectations.
15
Question
What does the supply curve show?
Page 2
Answer
Quantity supplied at each possible price (other factors constant).
16
Question
What factors shift the supply curve?
Page 3
Answer
Change in production costs, technology, regulations.
17
Question
What occurs at market equilibrium?
Page 3
Answer
Price where quantity demanded equals quantity supplied.
18
Question
What is a shortage in the supply-demand model?
Page 3
Answer
Qd > Qs, causing price to rise.
19
Question
Under what conditions should you use the supply-demand model?
Page 3
Answer
Competitive market: price-takers, easy entry, homogeneous goods, full information, low transaction costs.
20
Question
What is the formula for price elasticity of demand?
Page 3
Answer
\[E_d = \frac{\% \Delta Q_d}{\% \Delta P} = \frac{\Delta Q}{\Delta P} \times \frac{P}{Q}\]
21
Question
How does price elasticity affect total revenue when price rises?
Page 3
Answer
Elastic (|E|>1): TR decreases. Inelastic (|E|<1): TR increases. Unit (|E|=1): TR unchanged.
22
Question
Where on a linear demand curve is point elasticity unit elastic?
Page 3
Answer
At the midpoint (|E| = 1). Above: elastic (|E| > 1). Below: inelastic (|E| < 1).
23
Question
What classifies a good based on income elasticity of demand?
Page 3
Answer
Positive: normal good. Negative: inferior good. >1 luxury; 0-1 necessity.
24
Question
What does positive cross-price elasticity indicate?
Page 4
Answer
Substitutes.
25
Question
Why is supply more elastic in the long run than short run?
Page 4
Answer
More adjustment time for inputs; exception for secondary metals (scrap more elastic short run).
26
Question
How do short-run and long-run elasticities differ for gasoline?
Page 4
Answer
Short-run inelastic (drive less). Long-run elastic (buy efficient cars).
27
Question
What are the three basic assumptions of consumer preferences?
Page 4
Answer
Completeness (rank all baskets), transitivity (A>B, B>C → A>C), more is better (non-satiation).
28
Question
What is utility in consumer theory?
Page 4
Answer
Numerical score representing satisfaction from a market basket.
29
Question
What are the properties of indifference curves?
Page 4
Answer
Downward sloping, convex to origin, cannot intersect.
30
Question
What is the marginal rate of substitution (MRS)?
Page 4
Answer
\[MRS = -\frac{\Delta Y}{\Delta X} = \frac{MU_x}{MU_y}\]. Maximum Y given up for one more X.