micro

• What does "Ceteris Paribus" mean?

  Holding other things constant
• What are positive statements?

  Objective statements that can be tested
• What are normative statements?

  Subjective statements about opinions and judgments
• What is the economic problem?

  Limited resources but unlimited wants and needs
• What is a scarce resource?

  An economic good
• What is a free good?

  A resource available without limit
• What are the factors of production?

  • Capital: man-made goods
  • Enterprise: entrepreneurs organizing factors of production
  • Land: natural resources
  • Labour: human input into production
• What does opportunity cost refer to?

  The value of the next best alternative forgone
• What is a Production Possibility Frontier (PPF)?

  A graphical representation of maximum output
• When is a PPF most efficient?

  When operating on the curve
• What does diminishing returns mean in the context of PPF?

  Opportunity cost increases as production expands
• What causes a PPF curve to shift outwards?

  Improvement in quantity or quality of factors
• What is specialization?

  Producing what one is more efficient at
• What did Adam Smith illustrate about specialization?

  Specialization increases productivity significantly
• What are the potential gains from specialization?

  • Higher labor productivity
  • Lower unit costs
  • Encouraged investment in capital
  • Improvement in quality of goods
  • Increased allocative efficiency
• What are the disadvantages of specialization?

  • Over-reliance on one commodity
  • Changing tastes and fashions
  • Risk of structural unemployment
  • Trade conflicts affecting exports
• What is division of labor?

  • Production broken into separate tasks
  • Increases output per person
  • Maximizes efficiency through repetition
• What are the advantages of division of labor?

  • Increased productivity and quality
  • Significant time savings
  • Lower prices for consumers
• What are the disadvantages of division of labor?

  • Boredom and repetitive strain injury
  • Low motivation and job satisfaction
  • Risk of long-term unemployment
• What are economies of scale?

  Average costs decrease as production increases
• What characterizes a free market economy?

  No government intervention or regulation
• What is Adam Smith's concept of the invisible hand?

  Self-interest leads to efficient resource allocation
• What are the advantages of a free market economy?

  • Competition incentivizes efficiency and innovation
  • Wide range of consumer choices
  • Rapid economic growth and higher living standards
  • Efficient resource allocation through price mechanism
  • Dynamic efficiency through innovation
• What are the disadvantages of a free market economy?

  • Significant income and wealth disparities
  • Underprovision of essential services
  • Prone to economic cycles of booms and busts
  • Market failures due to externalities and monopolies
  • Exclusion of low-income individuals
• What are the evaluations of free markets?

  • Free markets may solve their own failures
  • Government intervention can misallocate resources
  • Some services may require state provision
• What defines a command economy?

  Government regulates the economy completely
• What did Karl Marx believe about economic systems?

  They progress through different stages
• What is a mixed economy?

  Combines elements of free market and command economies
• What is the theory of demand?

  Quantity consumers are willing to buy at a price
• Why is the demand curve downward sloping?

  Due to income and substitution effects
• What is the income effect?

  Fall in price increases purchasing power
• What is the substitution effect?

  Consumers switch to cheaper substitutes
• What is derived demand?

  Demand for a factor of production
• What is joint demand?

  Demand for one product related to another
• What is composite demand?

  Goods with more than one use
• What causes shifts in the demand curve?

  • Population changes
  • Income variations
  • Related goods (substitutes/complements)
  • Advertising impact
  • Changes in tastes
  • Expectations
  • Seasonal factors
• What defines supply?

  Quantity producers are willing to supply at a price
• What causes shifts in the supply curve?

  • Changes in productivity
  • Indirect taxes
  • Number of firms
  • Technological advancements
  • Weather conditions
• What is the profit motive?

  Firms choose output to maximize profits
• What is joint supply?

  Supply of one good affects a by-product