SSE 106. Microeconomics Notes

BASIC TERMS
Basic needs - man’s needs required for survival
Capital- materials used in the production of goods and services including money
Economic Resources- inputs used in the production of goods & services
Economic System- the framework in which society decides on its economic problems
Empirical Validation- the use of statistical evidence to prove the validity of a hypothesis
Economics- a social science concerned with man’s problem of issuing source resources to
satisfy unlimited wants
Entrepreneur - organizes all other factors in production to be used in the creation of goods and
services
Free enterprise system- a system in which all economic resources are privately owned
Function- depicts the relationship between two or more variables; shows how one variable
depends on the other variable
Labor- humans efforts extended in production regarding basic economic problems
Land- natural resource, not man-made, covering anything found under land, water, forests,
minerals and animals
Luxury goods- goods that man can do/live without
Macroeconomics- the branch of economics that studies the economy as a whole; national
income analysis
Market- context in which buyers and sellers buy & sell goods, services and resources
Microeconomics- the branch of economics that deals with parts of the economy such as
household and business firm; known as price theory
Normative economics- an analysis of economics which deals with what should be
Positive Economics- an analysis of economics which deals with what actually is
Right to Private Property- the right of private individuals & enterprises to own valuable things
Theory/Hypothesis -unproven proposition tentatively accepted to explain certain facts or
provide a basis for a further investigation
Variable- a factor that is subject to change or variation
Wants- the various desires & needs of consumers that have to be satisfied through the use of
goods & services
Man’s Basic Act- consists of efforts to satisfy human wants & desires with the use of goods
and services
3 elements:
1. Human wants- unlimited & vary from the need of survival (basic needs)
2. Use of resources - basic economic resources of nation are land/rent,
labor/wage/salary and capital/interest and entrepreneurship/profit
3. Techniques of production- shows how resources are used & combined in production
Household- the basic consuming unit in the economy
Opportunity Cost- the value of a forgone alternative of a specific resource
Business Firm- serve as the economy’s producing unit to satisfy human wants with goods &
services
Economic Analysis- the process of directing economic relationship by examining the economic
behavior & event and determining the causal relationships among the data & activities observed
Economic Policy- consisted of intervention or courses of action taken by the government or

other private institution to manipulate the results of economic activities.
Supply Schedule- is a schedule of price & quantities that a supplier s are willing to offer for sale
at each period of time; shows the quantity of product demanded by a consumer at any given
price
Law of Supply- the higher the prices other than things being constant means lower profits; the
higher the prices, the more the supply= the lower the price, the lower the supply
Type of Economic System

1. Traditional Economic System- production decision are made according to customs &
traditions
2. Command Economy- the answers to the basic economic problems are dictate by
government through the head of the nation or a group of med designated by the head to
make decision
3. Market System- deals with the economic problems by considering consumer’s choices.
Demand- the quantity that buyers are willing to buy
Demand Function- whos how quantity demanded of a particular product respond to price
change
Ceteris Paribus (J. Bruce Landerman)- “all else being equal” says that none of the
independent variable changes
Non-price factors-
1. Income
2. Expectation on future prices
3. Prices of related goods like substitutes & complements
4. Size of the population
5. Quality of the product
6. Taste & preference
7. Promotion & advertising
8. Religion
9. Custom/traditions or advertisement
10. Fad/ Fashion
Shifts in the Demand Curve:
Shift to the right- increase in income

Shift to the left- decrease in income
Shift to right- greater taste/preference
Shift to the left- less taste/preference
Shift to the right- increase in population
Shift to the right- decrease in population
Shift to the right- greater speculation
Shift to the left- less speculation
Direct relationship between price & quantity supplied

“As price tends to increase, the quantity supplied of a product tend to increase “
The Law of Supply
Non-price determinants (constant)

1. Cost of production
2. Availability of economic resources
3. Number of firms in the market
4. Technology applied
5. Producer’s goals
6. Taxes and subsidiaries
7. Price of the product
8. Price expectation
“ Other things assumed as constant, prices and quantity supplied are directly
proportional”
Simultaneous Shift in Demand & Supply- both demand and supply move towards the
same direction
Shifts
1. Increase in the number of seller– shift to the right

2. Decrease in the number of seller- shift to the left
3. Decrease in the cost of protection- shift to the right
4. Goals of the firm- it depends
Violations of the Law of Supply and Demand
Price Ceiling- the maximum price for a product that a seller could give
Price floor- the minimum price for a product that seller could give

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BASIC TERMS

Basic needs - man’s needs required for survival

Economic Resources- inputs used in the production of goods & services

Labor- humans efforts extended in production regarding basic economic problems

Luxury goods- goods that man can do/live without

Normative economics- an analysis of economics which deals with what should be

Positive Economics- an analysis of economics which deals with what actually is

Variable- a factor that is subject to change or variation

Household- the basic consuming unit in the economy

Opportunity Cost- the value of a forgone alternative of a specific resource

Economic Policy- consisted of intervention or courses of action taken by the government or

Type of Economic System

Shifts in the Demand Curve:

Shift to the right- increase in income

Direct relationship between price & quantity supplied

The Law of Supply

Non-price determinants (constant)

1. Increase in the number of seller– shift to the right

Violations of the Law of Supply and Demand

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