Introduction to Microeconomics - Introduction

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    Prabudda Missaka S3211475

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    TERMINOLOGY

    1.

    MicroeconomicsConcerned with specific economic units and detailed behaviour of those units2. MacroeconomicsConsider the economy as a whole or in basic subdivisions.3. UtilitySatisfaction that gets from consumption4. People have unlimited wants5. resources are scarce6. Investment in capital resourcesPurchases of capital goods (new plant and equipment)7. InterestPrice paid for borrowing money8. Labour - All human physical and mental talents.9. Wages - Income occurring from labour.10. Entrepreneurial abilitySpecialised form of human resource.11. ProfitReward for entrepreneurship12. Perfect competitionno participants are large enough to have the market power.13. RentIncome received by land.14. InvestmentProcess of producing capital goods.15. Interest - Payment for capital16. WageIncome occurring to labour17. Profit- The reward for entrepreneurship18. Cost benefits principalSystematic process of comparing cost and benefits.19. Marginalismattempt to explain the discrepancy of value of goods (why diamond is expensive than

    water)

    20. Rational behaviourBehaviour that involves deciding of choices in order to achieve the greatestsatisfaction.

    21. Opportunity costthe loss of potential from other alternatives when one option is chosen.(Opportunity cost of doing a degree is money you lose if you did a job instead)

    22. Marginal benefit ; the additional satisfaction that a person receives from consuming an additional unitEx, someone is willing to pay additional $10 to buy an extra burger. More burgers he buys amount of

    money he is willing to pay decreases.

    23. Market equilibrium : A situation where supply of an item is exactly same as demand. (where supplyand demand curves intersect)

    24. Price floor: legal minimum price25. Market clearing price = equilibrium price26. Rationing = controlled distribution of scarce resources27. Ceteris paribus (Other things being equal) : effect of something when all other fathers being

    unchanged

    28. Economic efficiency : producing goods and services to maximise the satisfaction of the society29. Marginal cost : Cost of producing an extra item30. Production possibility table: Representation of figures on a PPF curve on a table

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    31. Production possibility frontier : Combination of production possibilities of two products

    32.

    L = unemployment (all resources are not productively used)

    D,J = Full employment

    33.

    When economic growth occurs PPC expands34. Price taker ; cant decide the market price35. Demand curve

    -Shifts along the demand curve are caused by Price changes

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    - INWARD OR OUTWARD MOVE OF THE DEMAND CURVE IS CAUS ED BY

    o Numberof buyerso Increase in incomeo Improvements in technologyo Increase in income

    36. Market demand is the sum of the individual demand37. Inferier good; Goods of which demand decrease as income increases38. Normal goods; Demand oncreases as income increases (Luxury Cars, diamonds )39. Complementary good ; A good that is used in conjunction with another good40. Producer Surplus = The price difference between the prices the seller is willing to sell at and what he

    Receives

    41. Consumer surplus : The difference between the price consumer is willing to pay and the actual pricehe has to pay.

    42. Consumer surplus : Area between market price and the price consumer is willing to pay

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    WEEK 1

    TWO CATAGORIES OF RESOURCES

    I. Property resoutcesLand, Row materials, CapitasII. Human resources- Labour, entreprenural ability

    FOUR CATEGORIES OF RESOURCES

    I. LabourII. CapitalAll manufactured aids (Buildings, Equipment, Human skills) used to produce goods and

    services

    III. EntrepreneurshipIV. Land

    FIVE FUNDAMENTAL ECONOMIC PROBLEMS

    I. How much total output is to be produced?II. What combination of outputs is to be produced?

    III. How are these outputs to be produced?IV. Who is to receive/consume these outputs?V. How can change be accommodated?

    TWO TYPES OF EFFICIENCIES

    1. Allocative efficiency : Production of goods most wanted by the societyDoes not always sit on the PPF curve

    Occurs when MB = MC

    2. Productive efficiency: Producing goods using lowest cost production methodsEx, Efficiently produce guns,, production is efficient but ne demand

    Productive efficiency sits on the ppf curve (A,B)>>>

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    CHARACTERISTICS OF PERFECT COMPETITION

    1. All firms sell an identical product.

    2. All firms are price takers.

    3. All firms have a relatively small market share.

    4. Buyers know the nature of the product being sold and the prices

    charged by each firm.5. The industry is characterized by freedom of entry and exit

    VARIABLES THAT INFLUENCE BUYERS

    1. Price of the good2. Income3. Taste4. Expectations

    TYPES OF GOODS

    1. Normal goods : Demand increases as income increases (Luxury cars, diamonds)2. Inferior goods : Demand decreases as income decreases (Noodles)3. Substitute goods : Goods which can be replaced by others (different types of cars)4. Complementary goods : Goods used together (petrol)

    REASONS FOR SHIFTS IN DEMAND CURVE

    1. Shift along the demand curve : Change in price2. Shift of the whole curve : income, Technology, Preferences3. Number of buyers

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    FACTORS THAT CAN CAUSE A SHIFT IN THE SU PPLY CURVE

    1. Taxes2. Improvement in technology3. Prices of other goods4. Number of goods5. Market expectations

    Total of individual supply = Market supply

    Supplier surplus : Area above the curve Producer surplus : Area under the curve Total surplus : Sum of consumer surplus and producer surplus. Price below the equilibrium: Shortage Price the above the equilibrium: Surplus Both surplus and shortage affects the equilibrium

    - Surplus decrease the price moving towards the equilibrium- Shortage increase the price moving towards the equilibrium

    HOW INCREASE IN DEMAND SHIFT THE EQUILIBRIUM

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    CHANGES IN PRICE AND DEMAND ALONG WITH SHIFTS IN SUPPL Y AND DEMAND

    CURVES