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College of Business Administration
Assignment #1
ECON 1312
Introduction to Microeconomics
Sasha Sami Bukhari
201101761
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Sasha Sami Bukhari
201101761
Microeconomics
1310
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ECON 1312
Assignment #1
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Part 1. Definitions
Chapter 1. The Central Concepts of Economics
1. Economics: is the study of how societies use scarce or limited resources to produce valuable goods
and services and distribute them among different individuals or societies.
2. Scarcity: is when goods are limited compared to the desires of the usage of individuals. Which
means that's its limited because a lot of people want or desire it.
3. Economic Goods: are goods produced for the economy.
4. Efficiency: is when you use the most effective way to satisfy people's needs and want. Without any
wastage of society's resources.
5. Economic Efficiency: requires that an economy produce the highest combination of quantity and
quality of goods and services given its technology and scare resources. An economy is producing
efficiently when no individual's economic welfare can be improved unless someone else it made worse
off.
6. Microeconomics: the branch of economics which today is concerned with the behavior of individual
entities such as markets, firms, and households. So Microeconomics deals with specific things instead
of general.
7. Macroeconomics: which is concerned with the overall performance of the economy. Which is the
opposite of Microeconomics.
8. The Post Hoc Fallacy: occurs when we assume that, because one event occurred before another
event, the first event caused the second.
9. The Fallacy of Composition: when you assume that what is true for the part is also true for the
whole. This makes you commit a fallacy of composition.
10. Market Economy: is one which individuals and private firms make the major decisions about
production and consumption. In other words in a place where people decide the prices of goods and
how much they are going to sell.
11. Laissez-faire Economy: is in which governments keeps its hands off economic decisions.
12. Command Economy: is one in which the government makes all important decisions about
production and distribution.
13. Mixed Economy: with elements of market and command economy.
14. Inputs: are commodities or services that are used to produce goods and services.
15. Outputs: are the various useful goods or services that result from the production and process and are
either consumed or employed in further production.
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16. Land: natural resources, represent the gift of nature to our societies.
17. Labor: consists of the human time spent in production.
18. Capital: resources form the durable goods of an economy, produced in order to produce yet other
goods.
19. Production-possibility frontier: shows the maximum quantity of goods that can be efficiently
produced by an economy, given its technological knowledge and the quantity of available inputs.
20. The Opportunity cost of a decision is the value of the good or service forgone.
21. Efficiency means that the economy is on the frontier rather than inside the production-possibility
frontier.
22. Productive efficiency occurs when an economy cannot produce more of one good without
producing less of another good.
Chapter 2. The Modern Mixed Economy
1. Mixed economy: a combination of private enterprise working through the marketplace and
government regulation, taxation, and programs.
2. Market: is a mechanism through which buyers and sellers interact to determine prices and exchange
goods, services, and assets.
3. Price: is the value of the good in terms of money.
4. Market equilibrium: represents a balance among all the different buyers and sellers.
5. Profits: are net revenues, or the difference between total sales and total costs.
6. Specialization: occurs when people and countries concentrate their efforts on a particular set of tasks.
9. Division of labor: dividing production into a number of small specialized steps or tasks.
10. Money: is the means of payment in the form of currency and checks used to buy things.
11. Perfect competition: is the technical term refers to a market in which no firm or consumer is large
enough to affect the market price.
14. Imperfect competition: occurs when a buyer or seller can affect a good's price.
15. Externalities: occur when firms or people impose costs or benefits on others outside the
marketplace.
16. Government regulations: are designed to control externalities like air, water, and land pollution.
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17. Public goods: are commodities which can be enjoyed by everyone and from which no one can be
excluded. This means that every person has a right to these goods no matter what.
18. Progressive taxation: means the larger your income is the larger the taxation on it would be.
Taxing large incomes at a higher rate than smaller incomes.
19. Transfer payments: which are money payments to people.
20. Welfare state: is one in which markets direct the detailed activities of day-to-day economic life
while government regulate social conditions and provide pension, health care, and other necessities for
poor families.
21. Socialism: in which the state owns, operates, and regulates much of the economy.
Chapter 3. Basic Elements of Supply and Demand
1. Theory of supply and demand: this theory shows how consumers preferences determine consumer
demand for commodities, while business costs are the foundation of the supply of commodities.
2. The relationship between price and quantity bought is called demand curve.
3. Law of downward-sloping demand: when the price of a commodity is raised, buyers tend to buy less
of the commodity.
4. Substitution effect, which occurs because a good becomes relatively more expensive when its price
rises.
5. Market demand: which represents the sum total of all individual demands.
6. The market demand curve is found by adding together the quantities demanded by all individuals at
each price.
7. Average income: is the average income of the population as a whole.
8. Size of the market: is measured by the population.
9. Special influences: will affect the demand for particular goods.
10. The net effect of the changes in underlying influences is what we call an increase in demand.
11. The supply curve: for a commodity shows the relationship between market price and the amount of
that commodity that producers are willing to produce and sell, other things held constant.
12. Cost of production: is the cost of the elements that go into making the final product. When the cost
of production is low producers usually make more products.
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13. Technological advances: which consists of changes that lower the quantity of inputs needed to
produce the same quantity of output.
14. Government policy: removing quotes and tariffs on imported automobiles increases total
automobile supply.
Chapter 4. Supply and Demand: Elasticity and Applications
1. Price elasticity of demand: measures how much the quantity demanded of a good changes when its
price changes.
2. Price inelastic demand: when a 1 percent change in price produces less than a 1 percent change in
quantity demanded.
3. Unit elastic demand: occurs when the percentage change in quantity is exactly the same as the
percentage change in price.
4. Slope: depends upon the changes in price and quantity.
5. Elasticity depends upon the percentage changes in price and quantity.
6. Total revenue: is by definition equal to price times quantity.
7. Price discrimination: is the practice of charging different prices for the same service to different
customers. For example when a seller sees that the buyer is rich he charges him more than the buyer
who has less money.
8. Price elasticity of supply is the percentage change in quantity supplied divided by the percentage
change in price.
9. Incidence: means the ultimate economic effect of a tax on the real incomes of producers and
consumers.
10. Subsidies: are used to encourage production.
Part 2. Questions
Chapter 1.
1. What are the three fundamental questions of an economic organization?
The three fundamental questions are:
 What commodities are produced and in what quantities?
 How are these goods produced?
 And for whom are these goods produced for?
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2. Explain the Production-Possibility Frontier.
The PPF shows the maximum quantity of goods that can efficiently produced by an economy,
given its technological knowledge and the quantity of available inputs. Which means that it
shows the most an economy can produce with the resources they have with minimum wastage.
Chapter 2.
1. What is the difference between specialization and division of labor?
Specialization occurs when people and countries concentrate their efforts on a particular set of
tasks. While division of labor means dividing production into a number of small specialized
steps or tasks.
2. Explain progressive taxation in your own words.
Progressive taxation is when larger incomes have larger taxation rates on them. This is to create
balance between the rich and the poor.
Chapter 3.
1. Complete the following sentences:
a) If demand rise……………………………………............................. and the prices
will……………… while the quantity……………….. as well.
b) If demand falls……………………………………………………... and the prices
will……………… while the quantity ……………….. as well.
a) The demand curve shifts to the right, increases, increases.
b) The demand curve shifts to the left, decreases, decreases.
2. Define prices of related good, and explain why supply is influence by it.
They are particularly goods that are alternative outputs of the production process. They affect or
influence supply because if the price of one production substitute rises, the supply of another
substitute will decrease.
Chapter 4.
1. Find the total revenue of these questions (total revenue is PxQ)
a) If a consumer buys 5 units at $3 each, what is the total revenue?
b) If a consumer buys 12 units at $5 each, what is the total revenue?
c) If a consumer buys 22 units at $1.2 each, what is the total revenue?
a) Total revenue = $15
b) Total revenue = $60
c) Total revenue = $26.4
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2. Explain the difference between price elasticity of demand and price elasticity of supply.
Price elasticity of demand measures how much the quantity demanded of a good changes when
its price changes. While price elasticity of supply is the percentage change in quantity supplied
divided by the percentage change in price.
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