Microeconomics Final Exam Cheat Sheet by egomezc | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

Micro economics cheat sheet Cheat Sheet
by egomezc via cheatography.com/146282/cs/31608/ Law of demand Law of supply
Competitive market equilibrium
Demand: the quantity of a good or service
Supply: quantity of goods and services that
Market equilibrium: When the quantity
that consumers are willing and able to
firms are willing and able to sell at any
demanded for a product is equal to the
purchase at a given price in a particular time given price
quantity supplied of the product period Law of supply
Law of supply: As price increases, supply Equilibrium price
Equilibrium price: the point where the Law of demand
Law of demand: quantity demanded increases
demand for the product matches the supply
increases when prices decrease and vise ASSUMPTIONS of the product versa
Diminishing marginal returns
Diminishing marginal returns: after some
Market disequilibrium: when the quantity ASSUMPTIONS
optimal level of capacity is reached, adding
demanded for a product is either higher or
Income effect: lower price = higher income =
an additional factor of production will
lower than the quantity supplied for the higher demand
actually result in smaller increases in output product
Substitution effect: consumers replace
Increasing marginal costs: firms are willing Excess supply
Excess supply: e price of a product is set
higher priced products with lower priced
and able to increase production only if they
above equilibrium price, creating a surplus ones.
receive a higher price for the additional
in the market represented by the higher
quantity supplied than demanded
Diminishing marginal utility
Diminishing marginal utility: as consumption units of output.
increases, the satisfaction gained from Excess demand
Excess demand: price for a product is set
consuming one additional unit of a product Supply curve
below equilibrium price, resulting in a decreases.
higher demand and a lower supply Demand curve
Functions of the price mechanism
The price mechanism: the interactions
between buyers and sellers in order to
allocate resources, therefore determining
production and consumption choices Signalling function
Signalling function: aspect of the price
mechanism that signifies to producers and
consumers where resources are required
An increase in the price of tuna fish Incentive function
Incentive function: as price changes, the
provides an incentive on producers to
mechanism provides an incentive for
spend more time and effort to catch or farm
producers and consumers to change their tuna fish.
behaviour in order to maximize their benefits
Non price determinants of supply
The demand curve illustrates an inverse
Rationing function: Higher prices, lower the
relationship which explores how an increase Costs of factors of production
quantity demanded therefore helping to
in price leads to a decrease in the quantity preserve the good or service Price of related goods demanded Indirect taxes Subsidies
Non price determinants of demand Future price expectations Future price expectations Changes in technology Income Tastes and preferences
Price of related goods (substitutes)
Price of related goods (complementary) Number of consumers By egomezc egomezc Published 10th April, 2022. Sponsored by Readable.com Readable.com cheatography.com/egomezc/ Last updated 10th April, 2022.
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Micro economics cheat sheet Cheat Sheet
by egomezc via cheatography.com/146282/cs/31608/ Surpluses Behavioural economics
Price elasticity of demand (cont)
Consumer: Benefit to buyers who can
Choice architecture: the deliberate design of
PED < 1 → price inelastic demand
purchase the product at a lower price than
different ways of presenting choices to
PED = 0 → perfectly price inelastic demand
they were willing and able to pay
members of society, and the impact of these
PED = ∞ → perfectly price elastic demand
Producer: Benefit to firms who receive a
methods on decision-making.
PED = 1 → unitary elastic demand
price that is higher than the price at which
Nudge theory: the practice of influencing the they were willing to supply at
choices that people make. Nudges are Price elasticity of supply
Social: Sum of consumer and producer
created by choice architects using small
The degree of responsiveness of quantity
surplus at a given market price and output,
prompts or tweaks to alter social and
supplied of a product due to a change in its
thereby maximizing economic welfare
economic behaviour, but without taking
away the power for people to choose. price Allocative efficiency Formula
Formula: PES = % change in quantity Business objectives supplied / % change in price profit maximization
profit maximization: Sales level where DEGREES OF PES VALUES profits are the highest
PES > 1 → price elastic supply CSR
CSR: commit ethical objectives to benefit
PES < 1 → price inelastic supply stakeholders
PES = 0 → perfectly price inelastic supply Market share
Market share: a firm's portion of the total
PES = ∞ → perfectly price elastic supply value of sales revenue
PES = 1 → unitary elastic supply
Satisfaction: aim for a satisfactory or
Socially optimum situation that occurs when adequate level or profit
resources are distributed in a way that Income elasticity of demand
allows consumers and producers to gain the Growth
Growth: increasing the size and scale of
The degree of responsiveness of demand operations of a firm maximum benefit following a change in income Formula
Formula: YED = % change in QD / % Price elasticity of demand Rational consumer choice change in income
The responsiveness of quantity demanded
decision-making process based on the YED SIGNS
assumption that people make choices that
for a good in relation to a change in the price for the product YED + < 1 → normal goods
result in the optimal level of benefits YED + > 1 →Luxury goods ASSUMPTIONS Price elastic
Price elastic: if a slight change in the price
or income leads to a large change in the YED - → Inferior goods Consumer rationality demand for the product. Utility maximization
Price inelastic: if a change in price or YED Engel curve Perfect information
income has little impact on the demand for LIMITATIONS a good or service.
Biases (rule of thumb, anchoring, framing Formula:
Formula: PED = % change in QD / % and availability) change in price Bounded rationality DEGREES OF PED VALUES Bounded self control
PED > 1 → price elastic demand Bounded selfishness
The engel curve is used to demonstrate the Imperfect information
relationship between income and the quantity demanded By egomezc egomezc Published 10th April, 2022. Sponsored by Readable.com Readable.com cheatography.com/egomezc/ Last updated 10th April, 2022.
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Micro economics cheat sheet Cheat Sheet
by egomezc via cheatography.com/146282/cs/31608/
Reasons for government intervention
Market failure - externalities main terms Externalities Earn government revenue
Market failure: when the signalling,
The external costs or benefits of an Support firms
incentive and rationing functions of the price
economic transaction, causing the market
mechanism fail to operate optimally, which
to fail to achieve the socially optimal level of
Support households on low incomes
leads to a loss in economic welfare. It is consumption and production
Influence the level of production
when there is a misallocation of resources
Positive consumption: When consuming a
Influence the level of consumption private benefits
private benefits: advantages or gains of
good or service, provides a benefit to an To correct market failure
production and consumption enjoyed by an unrelated third party Promote equity individual firm or person.
Positive production: the positive effect an
Private costs: actual expenses incurred by
activity imposes on an unrelated third party
Main forms of government intervention an individual firm or person Negative consumption
Negative consumption: when consuming a PRICE CONTROLS Social benefits
Social benefits: benefits of consumption or
good causes a harmful effect to a third party
Government regulations establishing a
production, that is, the sum of private
Negative production: the production process
maximum or minimum price to be charged benefits and external benefits
results in a harmful effect on a third party.
for certain goods and services. They consist
Social costs: costs of consumption or
INTERVENTION TO CORRECT EXTERN‐
of price ceilings and price floors.
production, that is, the sum of private costs ALITIES
price ceilings: limits the maximum price in and external costs
Indirect taxes, carbon taxes, education,
order to encourage output and consum‐
MPB: additional value enjoyed by
international agreements, subsidies, direct ption.
households and firms from the consumption provision Price floor
Price floor: binding minimum price in order
or production of an extra unit of a particular
to encourage production and supply good or service. Public goods INDIRECT TAXES MPC
MPC additional expense of production for
Collective consumption goods that have
firms or the extra charge paid by customers
A government levy or charge on the sale of
two key characteristics of being non
for the output or consumption of an extra
goods and services, rather than on incomes rivalrous and non excludable unit of a good or service or wealth.
Non rivalrous: a person’s consumption of a
MSB: total gains to society from an extra
specific: charge a fixed amount of tax per
public good does not limit the benefits
unit of production or consumption of a unit sold available to other people. particular good or service Ad valorem
Ad valorem: impose a percentage tax on the
Non excludable: firms cannot exclude MSC
MSC total expenses to society from an extra value of a good or service.
people from the benefits of consumption
unit of production or consumption of a SUBSIDIES FREE RIDER PROBLEM particular product
a sum of money granted to help keep the
When people have access to a good or
price of a commodity or service low.
service without having to pay for it. As a
result, the good or service will be under DIRECT PROVISION
provided or not provided at all in the free
Government provides certain goods and market
services deemed to be in the best interest of the public. By egomezc egomezc Published 10th April, 2022. Sponsored by Readable.com Readable.com cheatography.com/egomezc/ Last updated 10th April, 2022.
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Micro economics cheat sheet Cheat Sheet
by egomezc via cheatography.com/146282/cs/31608/ Asymmetric information
A source of market failure that exists when
one economic agent (buyer or seller) has
more information than the other in an
economic transaction. It occurs owing to
incomplete information or inaccessibility to information. Adverse selection
Adverse selection: the undesired decisions
or outcomes that occur when buyers and
sellers have access to imperfect inform‐ ation. Moral hazard
Moral hazard: situation where a party
protected from risk behaves differently than
if they were fully exposed to the risk.
Responses to asymmetric information GOVERNMENT RESPONSES legislation Provision of information PRIVATE RESPONSES
Signalling: used by parties with access to
more information to maximize their own level of satisfaction Screening
Screening: used by parties with access to
less information to maximize their own level of satisfaction By egomezc egomezc Published 10th April, 2022. Sponsored by Readable.com Readable.com cheatography.com/egomezc/ Last updated 10th April, 2022.
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