Principles of Microeconomics at Fachhochschule des Mittelstands

Flashcards and summaries for Principles of Microeconomics at the Fachhochschule des Mittelstands

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Study with flashcards and summaries for the course Principles of Microeconomics at the Fachhochschule des Mittelstands

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is meant by scarcity?

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Describe the concept of economics.

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is meant by efficiency and equality?

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is meant by opportunity costs?
Give an example.

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Describe rational people and the way of rational decision-making
 

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is meant by marginal changes?

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is an incentive?

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What is meant by a market economy and what is the opposite concept 

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

What are property rights?

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Describe market failure and the two causes that can lead to it 

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Describe externality 

Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Describe market power

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Exemplary flashcards for Principles of Microeconomics at the Fachhochschule des Mittelstands on StudySmarter:

Principles of Microeconomics

What is meant by scarcity?

due to the limited resources a society can not
produce all the goods/services they want


Principles of Microeconomics

Describe the concept of economics.
Economics is a social science.  It is the study of how a society manages it's
scarce resources (in most societies trough the combined
action of millions of households and firms) Economics has many facets unified by several central
ideas. As an economy is just a group of people dealing with one
another the behaviour of an economy reflects the
behaviour of the individuals who make up the economy

Principles of Microeconomics

What is meant by efficiency and equality?
efficiency means that the society is getting the maximum benefits
from its resources & equality means that those benefits
are distributed uniformly among the society 
efficiency → size of the pie 
equality → how the pie is divided into individual slices These goals often conflict in policymaking → while achieving greater equality they reduce efficiency because reducing the reward of hard working
people allocating it to the poor leads people to work less and produce fewer goods = trying to cut the economic
pie into more individual slices reduces the size of the pie.


Principles of Microeconomics

What is meant by opportunity costs?
Give an example.
opportunity cost → what you give up to set an item

In many cases the cost of an action is not as obvious as
it might appear

Example the opportunity cost of going to university in order to achieve a higher education is the years that you lose in being able to earn money working




Principles of Microeconomics

Describe rational people and the way of rational decision-making
 
Rational people systematically & purposefully do the best they can to achieve their objectives

Rational desicion makers only take actions if the marginal benefit of the action exceeds the marginal cost!


Principles of Microeconomics

What is meant by marginal changes?
marginal changes: small incremental adjustments to an
existing plan → adjustments around the edges of what
you are doing


Principles of Microeconomics

What is an incentive?

An incentive describes something that induces
people to act in the  prospect of punishment or reward

- incentive plays a central role in economics they are  crucial  in analyzing how markets work
- Example: rise of price of an apple leads to: people eat fewer apples & produces produce more 

→higer price = incentive to consume less(buyers) & produce more (producers)

Principles of Microeconomics

What is meant by a market economy and what is the opposite concept 

market economy = economy that allocates resources
trough decentralized decisions of millions of
households and firms (households decide what firms to
work for and what to buy with their income)

- free markets contain many buyers and sellers →
primarily interested in their own wellbeing, BUT still
have been proven sucsessfull in organizing economic
activity to promote overall economic wellbeing ↳ Invisible hand

A communistic market is the opposite where prices are dictated by an overall planner


Principles of Microeconomics

What are property rights?
property rights = ability of individuals to own &
control scarce resources


Principles of Microeconomics

Describe market failure and the two causes that can lead to it 
Market failure → situation in which the market on it's own fails to allocate resources
efficiently
 → possible causes 1. externality 2. market power

in the presence of externalities or market power →
public policy can enhance (verbessern) economic
efficiency

Principles of Microeconomics

Describe externality 

externality = impact of one person's actions on the
wellbeing of a bystander (classical example: pollution)


Principles of Microeconomics

Describe market power
market power = ability of a single economic actor (or small group) to have substantial influence on the
market prices


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