ECON101 - Principles of Microeconomics Flashcards

Question 1

What is scarcity in economics?

Accepted Answer

The fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources. It forces individuals and societies to make choices.

Question 2

Define opportunity cost and provide an example.

Accepted Answer

The value of the next best alternative that must be foregone when a choice is made. Example: If you choose to study for an exam instead of working, the opportunity cost is the money you could have earned.

Question 3

What does the Production Possibilities Frontier (PPF) illustrate?

Accepted Answer

A curve illustrating the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. It demonstrates scarcity, opportunity cost, and efficiency.

Question 4

State the Law of Demand.

Accepted Answer

All else being equal (ceteris paribus), as the price of a good or service increases, the quantity demanded decreases, and vice versa.

Question 5

List the key determinants (shifters) of demand.

Accepted Answer

Tastes and preferences, income (normal vs. inferior goods), prices of related goods (substitutes vs. complements), expectations, and number of buyers.

Question 6

State the Law of Supply.

Accepted Answer

All else being equal (ceteris paribus), as the price of a good or service increases, the quantity supplied increases, and vice versa.

Question 7

List the key determinants (shifters) of supply.

Accepted Answer

Input prices, technology, taxes and subsidies, expectations, number of sellers, and prices of other goods the firm could produce.

Question 8

Define market equilibrium.

Accepted Answer

A state where the quantity demanded equals the quantity supplied at a specific price, known as the equilibrium price. There is no tendency for the price to change.

Question 9

What is a market shortage?

Accepted Answer

A situation where the quantity demanded exceeds the quantity supplied at a given price, typically below the equilibrium price. This puts upward pressure on prices.

Question 10

What is a market surplus?

Accepted Answer

A situation where the quantity supplied exceeds the quantity demanded at a given price, typically above the equilibrium price. This puts downward pressure on prices.

Question 11

Define consumer surplus.

Accepted Answer

The difference between the maximum price a consumer is willing to pay for a good or service and the actual price they pay. Graphically, it's the area below the demand curve and above the equilibrium price.

Question 12

Define producer surplus.

Accepted Answer

The difference between the actual price a producer receives for a good or service and the minimum price they are willing to accept. Graphically, it's the area above the supply curve and below the equilibrium price.

Question 13

Define Price Elasticity of Demand ($E_d$) and provide its formula.

Accepted Answer

A measure of the responsiveness of the quantity demanded of a good to a change in its price.
Formula: $E_d = \frac{\% \Delta Q_d}{\% \Delta P}$ (Often presented as an absolute value).

Question 14

What does it mean for demand to be elastic?

Accepted Answer

Demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price ($|E_d| > 1$). Consumers are highly responsive to price changes.

Question 15

What does it mean for demand to be inelastic?

Accepted Answer

Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price ($|E_d| < 1$). Consumers are not very responsive to price changes.

Question 16

Define Income Elasticity of Demand ($E_I$), provide its formula, and explain what it indicates.

Accepted Answer

A measure of the responsiveness of the quantity demanded of a good to a change in consumer income.
Formula: $E_I = \frac{\% \Delta Q_d}{\% \Delta I}$
If $E_I > 0$, it's a normal good. If $E_I < 0$, it's an inferior good.

Question 17

Define Cross-Price Elasticity of Demand ($E_{XY}$), provide its formula, and explain what it indicates.

Accepted Answer

A measure of the responsiveness of the quantity demanded of one good (X) to a change in the price of another good (Y).
Formula: $E_{XY} = \frac{\% \Delta Q_X}{\% \Delta P_Y}$
If $E_{XY} > 0$, goods X and Y are substitutes. If $E_{XY} < 0$, goods X and Y are complements.

Question 18

Define Price Elasticity of Supply ($E_s$) and provide its formula.

Accepted Answer

A measure of the responsiveness of the quantity supplied of a good to a change in its price.
Formula: $E_s = \frac{\% \Delta Q_s}{\% \Delta P}$

Question 19

List the key characteristics of a perfectly competitive market.

Accepted Answer

Many buyers and sellers, homogeneous (identical) products, free entry and exit, perfect information, and firms are price takers.

Question 20

List the key characteristics of a monopoly.

Accepted Answer

Single seller, unique product with no close substitutes, significant barriers to entry, and the firm is a price maker.

Question 21

List the key characteristics of an oligopoly.

Accepted Answer

Few large firms dominate the market, products can be identical or differentiated, significant barriers to entry, and firms are interdependent (actions of one affect others).

Question 22

List the key characteristics of monopolistic competition.

Accepted Answer

Many sellers, differentiated products, relatively easy entry and exit, and firms have some control over price (price makers within a limited range).

ECON101 - Principles of Microeconomics

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