U1&2 revision

• What is the distinction between microeconomics and macroeconomics?

  Microeconomics deals with individual economic problems, while macroeconomics deals with societal economic problems.
• What is scarcity in economics?

  • Scarcity is the condition where limited resources are insufficient to meet unlimited wants and needs.
  • It forces individuals to make choices about resource allocation.
• What does supply refer to in economics?

  • Supply refers to the amount of a good or service that producers are willing and able to offer for sale at various prices.
  • It indicates market availability over a specific period.
• How is demand defined in economics?

  • Demand is the amount of a good or service that consumers are willing and able to purchase at various prices.
  • It reflects consumer desire and readiness to pay.
• What are costs in economic decision-making?

  • Costs are expenses or sacrifices incurred when making a choice.
  • They can include money, time, resources, or other factors given up.
• What are benefits in economic terms?

  • Benefits are the positive outcomes or advantages gained from a choice.
  • They represent satisfaction, profit, or improved well-being.
• What are incentives in economics?

  • Incentives are factors that motivate individuals or organizations to take specific actions.
  • They influence decision-making processes.
• What does choice refer to in economics?

  • Choice refers to the decision-making process individuals or organizations undergo when selecting among alternatives.
  • It involves evaluating options for consumption or action.
• What is efficiency in economic terms?

  • Efficiency refers to the optimal use of resources to achieve the best outcomes with minimal waste.
  • It maximizes output while minimizing input costs.
• What is marginal utility?

  • Marginal utility is the additional satisfaction or benefit received from consuming one more unit of a good or service.
  • It influences consumer choices based on added value.
• What is the definition of economics?

  Economics is the study of scarcity and choice.
• What is the economic problem?

  • The economic problem arises from limited resources and unlimited wants.
  • It involves scarcity and the necessity of making choices.
• What is opportunity cost?

  • Opportunity cost is the value of the best alternative foregone when making a decision.
  • It includes the value of time and resources sacrificed.
• How do economists make economic decisions?

  • Economists compare benefits with costs.
  • Decisions are made based on whether benefits outweigh costs.
• What is marginal analysis?

  • Marginal analysis refers to evaluating the additional benefit of each new unit against its marginal cost.
  • It guides resource allocation decisions.
• What is an economic model?

  • An economic model is a simplified representation of economic reality.
  • It shows relationships between economic variables and predicts behavior.
• What does a bowed-outward PPF indicate?

  • A bowed-outward PPF indicates increasing opportunity costs.
  • Resources are not perfectly substitutable between goods.
• What does the production possibility frontier (PPF) illustrate?

  • The PPF illustrates the economic problem and opportunity cost.
  • It shows combinations of goods and services produced with available resources.

  
• What are the characteristics of a market economy?

  • Characteristics include:
  • Markets and prices
  • Competition
  • Limited government
  • Freedom of choice
  • Private property
  • Supply and demand
  • Incentives
• What is the law of demand?

  • The law of demand states that a higher quantity is demanded at lower prices.
  • There is an inverse relationship between price and quantity demanded.
• How is market demand derived?

  • Market demand is the summation of individual demand curves in a market.
  • Individual demands collectively form the market demand.
• What happens to demand when prices change?

  • An extension in demand occurs when price lowers, increasing quantity demanded.
  • A contraction in demand occurs when price rises, decreasing quantity demanded.
• What are non-price factors affecting demand?

  • Non-price factors include:
  • Related goods and their values
  • Disposable incomes
  • Preferences/tastes
  • Demographic factors
  • Expectations
  • Advertising
• What is the law of supply?

  • The law of supply states that a higher quantity will be supplied at a higher price.
  • There is a direct relationship between price and quantity supplied, ceteris paribus.
• How is market supply derived?

  • Market supply is a combination of all individual supply curves in a market.
  • Individual supply curves collectively form the market supply curve.
• What happens to supply when prices change?

  • An extension in supply occurs with increased price and quantity supplied.
  • A contraction in supply occurs with decreased price and quantity supplied.

  
• What are non-price factors affecting supply?

  • Non-price factors include:
  • Technology
  • Cost of production
  • Suppliers’ expectations
  • Prices of other goods
  • Number of producers
• What is market equilibrium?

  • Market equilibrium occurs when demand and supply are equal.
  • It balances consumer buying intentions with producer selling intentions.

  
• What happens when prices are above or below equilibrium?

  • Above equilibrium: excess supply occurs, forcing prices down.
  • Below equilibrium: excess demand occurs, forcing prices up.

  
• What is a shortage in the market?

  • A shortage occurs when demand exceeds supply at a given price.
  • It results in excess demand for goods.
• What is a surplus in the market?

  • A surplus occurs when supply exceeds demand at a given price.
  • It results in excess supply of goods.
• How do changes in demand and supply affect market equilibrium?

  • An increase in demand shifts the demand curve right, increasing quantity and price.
  • An increase in supply shifts the supply curve right, decreasing price and increasing quantity.

  
• What is price elasticity of demand?

  • Price elasticity of demand measures how responsive demand is to price changes.
  • It indicates the percentage change in quantity demanded resulting from a percentage change in price.
• What characterizes an elastic demand curve?

  • An elastic demand curve is flatter, indicating significant changes in quantity demanded with price changes.
  • It is responsive to price changes.
• What characterizes an inelastic demand curve?

  • An inelastic demand curve is steeper, indicating smaller changes in quantity demanded with price changes.
  • It is generally unresponsive to price changes.
• How is total revenue related to price elasticity of demand?

  • Total revenue is calculated as price multiplied by quantity.
  • It is influenced by the elasticity of demand.
• What is the formula for price elasticity of demand (PED)?

  $PED =$$\frac{\text{percentage change in quantity demanded}}{\text{percentage change in price}}$
• What is a demand curve considered elastic?

  A demand curve is elastic when a percentage change in price results in a proportionally larger percentage change in quantity demanded.
• What does a flatter slope of an elastic demand curve indicate?

  A flatter slope indicates that quantity demanded changes significantly with price changes.
• How does an elastic demand curve respond to price changes?

  An elastic demand curve is responsive to changes in prices.