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Microeconomics Unit 1 by Mind Map: Microeconomics Unit 1
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Microeconomics Unit 1

Microeconomics focuses on individual consumers and businesses.

Chapter 1: The Economic Problem

Economics Defined

Economics is the study of how to distribute scarce resources among competing ends.

The Economic Problem

Humans wants and needs are unlimited, but Earths resources are scarce and limited.

Economic Models

- Simplify economic reality - Relationships between dependent variables to independent variables - Inverse or direct relationships

Economic Choice

- Economic decision makers maximize their own utility -

Production Possibility Model

Based on three assumptions: 1. Economy only makes two products 2. Resources and technology are fixed 3. All resources are employed to their fullest potential

Basic Economic Questions

What to produce? How to produce? Whom to produce for?

Economic Systems

Traditional - non economic concerns and have tight social constraints Market - consumer centered and innovative but create inequality and instability Command - equalizes incomes but lacks in freedom

Economic Goals

Seven Major Economic Goals: 1. Economic efficiency 2. Income equity 3. Price stability 4. Full employment 5. Balance of payments 6. Economic growth 7. Environmental stability

Founder of Economics

- explained how the division of labour increases production - argued that self interest is transformed by the invisible hand of competition so that it creates significant economic benefits - stressed the principle of laissez faire, which means that governments should not intervene in economic activity

Chapter 2: Demand and Supply

Demand

relationship between products price and quantity demanded.

Supply

relationship between a products price and quantity supplied

Market Equllibrium

Surplus - excess in supply - price is decreased Shortage - excess in demand - price pushed up

Utility Maximizing Rule

Chapter 3: Competition Dynamics and Government

Elastic and Inelastic Demand

- Price elasticity of demand shows how responsive consumers are to price changes - elastic demand means % change in quantity demanded is more than % change in price - inelastic demand means % change in quantity demanded is less than % change in price - unit-elastic demand means % change in quantity demand equals % change in price

Elastic and Inelastic Supply

- Price elasticity of supply measures the responsiveness of quantity supplied to price changes - elastic supply means % change in quantity supplied is more than % change in price - inelastic supply means % change in quantity supplied is less than % change in price

Income Elasticity

ei = ΔQd ÷ average Qd ___________________ ΔI ÷ average I  

Cross Price Elasticity

exy = ΔQd ÷ average Qd _________________________ ΔPy ÷ average Py

Government