Vasco
This area of economics studies the decision-making of households, firms, and governments.microeconomics
Microeconomics
When the price of tea (a substitute) falls, this happens to the demand for coffee.
A decrease (leftward shift) in demand for coffee
A consumer spends $10 on tea (giving 100 utils) and $20 on coffee (giving 150 utils). Which has the higher marginal utility per dollar?
tea (10 utils per dollar vs. 7.5 for coffee)
These goods are used to produce other goods and services, such as machinery, tools, factories, or delivery trucks.
Capital goods
This economic model shows the maximum possible combinations of two goods that an economy can produce using all available resources efficiently.
Production Possibilites Curve (PPC)
This law states that each additional unit consumed gives less satisfaction than the previous one.
The law of diminishing marginal utility?
When a consumer’s income rises, this type of good sees increased demand.
Normal Good
In this type of economy, resources are allocated mainly through supply, demand, prices, and consumer/producer choice.
Free market economy
A point inside the PPC shows this because the economy is not using all resources fully or efficiently.
inefficient production / poor allocation of resources
A country discovers new technology that makes both rice and pencil production more efficient. This is what happens to the PPC.
PPC shifts outward
This effect explains that when a good becomes cheaper, consumers can buy more because their real wage increases.
The income effect
This effect causes consumers to buy more of a relatively cheaper good and less of a more expensive one.
Substitution Effect
For market system to function effectively, people need to have what regarding resources and the ability to exchange them.
Well-defined property rights
An economy moves from a point on the PPC to a point inside the PPC because of unemployment or inefficient use of resources. This type of output has decreased.
Actual output
A cyclone damages Fiji’s infrastructure and one of its sugar mills. This is what happens to Fiji’s production possibilities.
PPC shifts inward
This term means the extra satisfaction gained from consuming one more unit of a good.
Marginal utility
If the marginal utility from pizza is 80 utils and the price is $8, what is the marginal utility per dollar?
10 utils per dollar
A slice of pizza is this type of good because when one person eats it, another person cannot eat the same slice.
rival good
As the price of gas goes up, what happens to the quantity demanded of cars
The quantity demanded of cars declines at every price point, so the entire demand shifts left
These goods are used by consumers to satisfy needs and wants directly, such as food, clothing, or a phone.
Consumer goods
This concept explains why the demand curve slopes downward: consumers get less utility from each extra unit, so they’ll only buy more at lower prices.
The link between diminishing marginal utility and the law of demand?
If the price of music lessons falls from $60 to $20 and marginal utility stays at 600 utils, what happens to MU per dollar?
an increase from 10 to 30 utils per dollar
If marginal utility per dollar for two goods is equal, what is true about the consumer’s equilibrium?
the consumer is maximizing total utility
This refers to movement along a demand curve caused by a price change, while income as a non-price determinant shifts the whole demand curve.
the difference between the income effect and income as a non-price determinant of demand
In the resource or factor market, households provide land, labor, capital, and entrepreneurship to firms in exchange for this.
Income ( rent, wages, interest, and dividends)