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Micro Final Review
27 cards·by Allip123
What is opportunity cost?
The real cost of an item; what you give up in order to get
What causes a shift?
Occurs when quantity demanded/supplied changes while price remainsconstant(change in
income)
What causes a movement along a curve?
Occurs when all factors affecting quantity demanded/supplied are constant and only price
changes
What would cause the demand curve to be vertical?
Inelastic (e.g. medicine)
How can this argument be true given the law of diminishing marginal utility?
As a person increases consumption of a good, their additional pleasure decreases
What importance does price play in the allocation of resources?
Positive relationship between supply and price. Negative relationship between demand and
price
What happens if "the price is not right?"
Price is too high= no one will buy it and you lose profit. Price is too low= not enough products to
sell to make a profit
Traditional economists argue against the use of price ceilings and floors. Why?
Price ceilings and floors prevent the price and demand of a good from reaching equilibrium
price. Prevents surplus or shortage
What do we mean by a budget constraint?
Measures maximized combinations of 2 goods you can purchase given your income and prices
What is an indifference curve?
Represents various combinations of 2 goods that give the same amount of total utility
Why are indifference curves shaped this way?
They compare the quantity of 2 products yielding the same amount of total utility
Can you have indifference curves shaped this way?
No. It implies that at the point they intersect, the 2 products have identical utility
What makes reaching equilibrium so special?
Shows the distribution of 2 products you can purchase without going over your budget
What is meant by price elasticity? What importance does this have?
Responsiveness of a change in quantity demanded due to a change in price. Depending on how
elastic, changing in price can affect demand
What does it mean to have perfectly elastic demand?
Infinite # of quantities demanded are associated with a change in price level
What does it mean to have perfectly inelastic demand?
Quantity demanded/supplied is unaffected by any change in price
What does it mean to have perfectly inelastic demand?
Quantity demanded/supplied is unaffected by any change in price
What factors affect the magnitude of price elasticity of demand?
1) Type of good: Luxury or necessity? 2) Time period to adjust price range 3) Alternatives
available 4) Percentage of income spent on good
What is meant by a proprietorship?
Person who owns the business and is responsible for its debts
What are the advantages of a proprietorship?
1) You're in control 2)Get all the profit 3) Easy to start 4) Profit taxed once as personal
income
What are the disadvantages of a proprietorship?
1) Unlimited liability 2) Limited knowledge 3) Limited capital 4) Limited lifetime
What is meant by a partnership?
Firm with limited # of owners
What are the advantages of a partnership?
1) More knowledge 2) More access to control 3) Easy to start 4) Profit taxed once as personal
income
What are the disadvantages of a partnership?
1) Unlimited shared liability 2) Shared control 3) Shared profit 4) Limited lifetime
What is meant by a corporation?
Firms takes on legal identity of a person
What are the advantages of a corporation?
1) Limited liability 2) More capital 3) More knowledge
What are the disadvantages of a corporation?
1) Loss of control 2) More complicated to start 3) Profit gets taxed twice 4) Agency problem