Micro vs. Macro
What does microeconomics study?
Individual decision-makers like consumers, firms, and industries.
What economy is based on customs and traditions?
Traditional economy.
What is market failure?
When markets alone don’t allocate resources efficiently.
What is opportunity cost?
The value of the next best alternative given up when making a choice.
What does the law of demand state?
As price decreases, quantity demanded increases (and vice versa).
What does macroeconomics study?
The economy as a whole, including growth, inflation, and unemployment.
In which type of economy does the government make all production decisions?
Command economy.
Give one example of a government role as a provider.
Public education, national defense, or infrastructure.
Provide a simple real-life example of opportunity cost.
Choosing to watch TV instead of studying (lost grades are the cost).
What is the difference between a movement along the demand curve and a shift in the demand curve?
Movement = price change of the good itself; Shift = another factor changes demand.
Give an example of a microeconomic problem.
How one company decides pricing for its products.
What is the key feature of a market economy?
Decisions are made by individuals and businesses based on supply and demand.
What tools does the government use to stabilize the economy?
Fiscal policy and monetary policy.
What is marginal cost?
The additional cost of producing one more unit of a good or service.
What does TRIBE stand for in demand shifters?
Tastes & preferences, Related goods, Income, Buyers, Expectations.
Give an example of a macroeconomic problem.
High national unemployment rates.
Why are most economies today considered “mixed economies”?
They combine elements of command and market systems.
What is the difference between progressive and regressive taxes?
Progressive: higher earners pay a higher percentage; regressive: lower earners pay a higher percentage of income.
What is the decision rule for marginal analysis?
Continue until marginal benefit = marginal cost.
What happens when the price is above equilibrium?
A surplus occurs (Qs > Qd).
How do consumer choices affect firms, and how do firms’ decisions affect consumers?
Consumer demand influences what firms produce; firm production/pricing decisions affect consumer choices.
Compare one strength and one weakness of a command economy.
Strength: Can quickly mobilize resources. Weakness: Often inefficient and limits consumer choice.
Explain one way government regulation helps the economy and one way it might hurt it.
Helps by ensuring fairness/safety (e.g., antitrust laws), might hurt by slowing growth with too many restrictions.
What is the difference between positive and negative incentives? Give an example of each.
Positive = reward (bonus, discount); Negative = penalty (fine, late fee).
What does I-RENT stand for in supply shifters?
Input costs, Regulation/taxes/subsidies, Expectations, Number of sellers, Technology (and Trouble events).