Economics Praxis Review
Terms
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- Define microeconomics
- study of economic activities of consumers, busn. indust. and the way production and income works between them
- Goal of microeconomics
- to analyze the way prices of goods and services are set and how sources are allocated in society
- efficient allocation of resources means:
- both production and distribution are efficient
- opportunity cost
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fundamental concept
what needs to be given up to produce a good or service - what are the 3 main econ. resources
- Land, Labor, Capitol
- define production possibility frontier
- rel. between 2 types of output that defines trade off in allocating resources from the prod of 1 good to the other.
- Law of diminishing returns
- when addition of more workers creates decrease in output
- production possibility curve
- the most produce that can be produced with exisiting resources on a curve
- 3 types of business entities
-
proprietorships
partnerships
corporations - define sole proprietorship
- one person owns a company and his personal assets are risked
- partnership
- jointly owned/limited partners contribution is restricted to supplying capital and profit sharing
- corporation
- similar legal rights as a natural person-LLC limited liability company and stockholds hold no liability
- supply and demand
- basic model economists put together to explain economy
- who first articulated supply and demand theory?
- Alfred Marshall in 1890
- concept of demand:
- relationship between market price and quantity of the good or service purchased over a period of time
- define: Law of supply
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the higher the price of a good or service, the greater the quantity supplied-an upward sloping curve
direct relationship between price and quantity supplied - define market equilibrium
- when the quantity demanded equals the quantity supplied
- when supply increases and demand remains constant what happens to the equilibrium price?
- the equilibrium price decreases and the equilibrium quantity increases
- when supply decreases and demand is constant what happens to the equilibrium price?
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the equil. price increases
the equil. quantity decreases - define surplus
- when the price is above market equilibrium/ quantity exceeds demand
- define shortage
- when the price is below the market equilibrium/ quantity demanded exceeds quantity supplied
- Define elasticity
- in economic terms it means responsiveness-can the company respond quickly to a price change
- Define elasticity of demand
- the demand responds to change
- define inelasticity of demand
- The demand for an item is consistent despite change-example: oil prices rise but gasoline is still purchased
- define perfect elastic
- the quantity demanded stays the same regardless of price/graphed this is a straight line
- define perfectly ineslastic
- the price stays the same regarless of quantity demanded/graphed this is vertical
- defn elasticity of supply
- the supply responds to change
- defn inelasticity of supply
- the supply is consistent despite change
- dfn perfectly elastic
- the price stays the same no matter the quantity supplied/horizontal curve
- dfn perfectly inelastic
- quantity stays the same regardless of the price/vertical curve