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Microeconomics Summary All Chapters (1-14)

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Definitions I. Microeconomics (often called price theory) is the study of how individuals and firms make themselves as well off as possible in a world of scarcity and the consequences of those deci ... sions for markets and the entire economy II. Microeconomics is the study of the allocation of scarce resources III. A Model is a description of the relationship between two or more economic variables. Used to predict how a change in one variable will affect another. IV. An Economic theory is the development and use of a model to test hypotheses, which are predictions about cause and effect 1.1 Microeconomics: the allocation of scarce resources Consumer pick the mix of goods and services that makes them as happy as possible fine their limited wealth. Firms decide which good to produce. In general the owner of a depletable natural resource decide when/how/on what to use it Trade-Off People make trade-offs because they can’t have everything. Three key trade-offs I. Which good or service to produce —> there are only limited resources (workers, raw material etc.) II. How to produce III. Who gets the goods and services —> the more you get, the less someone else gets Chapter 1 1 of 97 Prices Determine Allocations Prices link the decisions about which/how to produce goods and services and who gets them. Interactions between consumer and firms take place in a market. When we talk about a single market we refer to trade in a single good or group of goods that are closely related [Show More]

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