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Economics Microeconomics: Markets and Consumers Syllabus

The Microeconomics: Markets and Consumers syllabus for Economics in full: 5 chapters and 17 topics, every one listed below, plus 51 Microeconomics: Markets and Consumers flashcards with answers.

5Chapters
17Topics
51Flashcards

Microeconomics: Markets and Consumers syllabus: all 5 chapters

Expand any chapter to see its topics and sub-topics.

  1. Demand

     3 topics
    • The Law of Demand
    • Consumer Surplus
    • Utility Theory

  2. Supply

     3 topics
    • The Law of Supply
    • Producer Surplus
    • Costs and Supply Decisions

  3. Market Equilibrium

     4 topics
    • Equilibrium Price and Quantity
    • Excess Demand and Supply
    • Changes in Equilibrium
    • The Price Mechanism in Action

  4. Elasticity

     4 topics
    • Price Elasticity of Demand
    • Income Elasticity of Demand
    • Cross Elasticity of Demand
    • Price Elasticity of Supply

  5. Consumer Behaviour

     3 topics
    • Indifference Curves
    • Income and Substitution Effects
    • Behavioural Economics

Economics Microeconomics: Markets and Consumers flashcards — 51 questions with answers

  1. State the Law of Demand.

    Other things being equal (ceteris paribus), as the price of a good falls, the quantity demanded rises; as price rises, quantity demanded falls. Price and quantity demanded are inversely related, giving a downward-sloping demand curve.

  2. What are the two reasons the demand curve slopes downward (why a price fall raises quantity demanded)?

    The income effect (a lower price raises real purchasing power, so more can be bought) and the substitution effect (the good becomes cheaper relative to substitutes, so consumers switch toward it).

  3. Distinguish a movement along a demand curve from a shift of the demand curve.

    A movement along the curve (change in quantity demanded) is caused only by a change in the good's own price. A shift of the whole curve (change in demand) is caused by non-price factors such as income, tastes, prices of related goods, population and expectations.

  4. Define consumer surplus.

    The difference between the maximum price a consumer is willing to pay for a good and the price they actually pay. On a diagram it is the area below the demand curve and above the market price.

  5. How is total consumer surplus shown on a demand-and-price diagram, and give its formula for a linear demand curve?

    It is the triangular area between the demand curve and the horizontal price line, up to the quantity bought. For a linear demand curve: $$\text{CS} = \tfrac{1}{2} \times Q \times (P_{\max} - P)$$ where $P_{\max}$ is the choke price (demand intercept).

  6. What is total utility, and what is marginal utility?

    Total utility is the overall satisfaction gained from consuming a given quantity of a good. Marginal utility is the extra satisfaction from consuming one additional unit: $$MU = \frac{\Delta TU}{\Delta Q}$$

  7. State the Law of Diminishing Marginal Utility.

    As more units of a good are consumed within a given period, the marginal (extra) utility gained from each additional unit eventually falls, other things being equal.

  8. State the equimarginal principle (utility-maximising condition) for a consumer spending on goods A and B.

    A consumer maximises total utility when the marginal utility per unit of currency is equal across all goods: $$\frac{MU_A}{P_A} = \frac{MU_B}{P_B}$$

  9. State the Law of Supply.

    Other things being equal, as the price of a good rises, the quantity supplied rises; as price falls, quantity supplied falls. Price and quantity supplied are directly (positively) related, giving an upward-sloping supply curve.

  10. List the main non-price factors that shift the supply curve.

    Costs of production (wages, raw materials), technology, taxes and subsidies, prices of other goods a firm could produce, number of firms, expectations, and shocks such as weather. These cause the whole supply curve to shift.

  11. Define producer surplus.

    The difference between the price a producer actually receives and the minimum price they would have been willing to accept (their marginal cost). On a diagram it is the area above the supply curve and below the market price.

  12. How is producer surplus calculated for a linear supply curve?

    It is the triangular area between the market price and the supply curve up to the quantity sold: $$\text{PS} = \tfrac{1}{2} \times Q \times (P - P_{\min})$$ where $P_{\min}$ is the supply-curve intercept (minimum acceptable price).

  13. Why is a firm's supply curve linked to its marginal cost curve?

    A profit-maximising firm supplies where price equals marginal cost ($P = MC$). As output rises, marginal cost typically rises, so higher prices are needed to justify supplying more. The firm's short-run supply curve is its MC curve above average variable cost.

  14. Distinguish fixed costs from variable costs.

    Fixed costs do not change with the level of output (e.g. rent, insurance) and exist even at zero output. Variable costs change directly with output (e.g. raw materials, hourly labour). Total cost $TC = TFC + TVC$.

  15. Give the formulas for average total cost and marginal cost.

    Average total cost: $$ATC = \frac{TC}{Q}$$ Marginal cost: $$MC = \frac{\Delta TC}{\Delta Q}$$

  16. Define equilibrium price and quantity in a market.

    The equilibrium price is the price at which quantity demanded equals quantity supplied ($Q_d = Q_s$), so the market clears. The equilibrium quantity is the amount traded at that price. Graphically it is where the demand and supply curves intersect.

  17. What is excess demand (a shortage), and how does the market correct it?

    Excess demand occurs when price is below equilibrium, so $Q_d > Q_s$. The shortage causes upward pressure on price; as price rises, quantity demanded falls and quantity supplied rises until the market clears at equilibrium.

  18. What is excess supply (a surplus), and how does the market correct it?

    Excess supply occurs when price is above equilibrium, so $Q_s > Q_d$. The surplus causes downward pressure on price; as price falls, quantity supplied falls and quantity demanded rises until the market clears at equilibrium.

  19. When demand increases (curve shifts right) with supply unchanged, what happens to equilibrium price and quantity?

    Both equilibrium price and equilibrium quantity rise.

  20. When supply increases (curve shifts right) with demand unchanged, what happens to equilibrium price and quantity?

    Equilibrium price falls and equilibrium quantity rises.

Show the other 31 Microeconomics: Markets and Consumers flashcards

  1. When demand decreases with supply unchanged, and when supply decreases with demand unchanged, what happens to equilibrium?

    A fall in demand lowers both equilibrium price and quantity. A fall in supply raises equilibrium price but lowers equilibrium quantity.

  2. What is the outcome for equilibrium quantity when both demand and supply increase, but by unknown amounts?

    Equilibrium quantity definitely rises, but the change in equilibrium price is indeterminate (ambiguous) — it depends on the relative sizes of the two shifts.

  3. What are the three functions of the price mechanism (the 'invisible hand')?

    Signalling (prices convey information about shortages and surpluses), incentive (prices motivate producers and consumers to change behaviour), and rationing/allocation (prices allocate scarce resources to those willing and able to pay).

  4. Define price elasticity of demand (PED) and give its formula.

    PED measures the responsiveness of quantity demanded to a change in the good's own price: $$PED = \frac{\%\,\Delta Q_d}{\%\,\Delta P}$$ It is normally negative because of the inverse price–quantity relationship.

  5. Classify demand by the value of PED (using absolute values).

    $|PED| = 0$ perfectly inelastic; $0 < |PED| < 1$ inelastic; $|PED| = 1$ unit elastic; $1 < |PED| < \infty$ elastic; $|PED| = \infty$ perfectly elastic.

  6. How does PED relate to total revenue when price rises?

    If demand is inelastic ($|PED|<1$), a price rise increases total revenue. If demand is elastic ($|PED|>1$), a price rise decreases total revenue. If unit elastic ($|PED|=1$), total revenue is unchanged.

  7. List the main determinants of price elasticity of demand.

    Availability and closeness of substitutes, proportion of income spent on the good, whether the good is a necessity or luxury, degree of addiction/habit, and the time period considered (demand is more elastic over the long run).

  8. Define income elasticity of demand (YED) and give its formula.

    YED measures the responsiveness of demand to a change in consumer income: $$YED = \frac{\%\,\Delta Q_d}{\%\,\Delta Y}$$

  9. How does the sign and size of YED classify goods?

    $YED > 0$ = normal good (of which $YED > 1$ = luxury/income-elastic, $0 < YED < 1$ = necessity/income-inelastic); $YED < 0$ = inferior good (demand falls as income rises).

  10. Define cross elasticity of demand (XED) and give its formula.

    XED measures the responsiveness of demand for good A to a change in the price of good B: $$XED = \frac{\%\,\Delta Q_{d,A}}{\%\,\Delta P_B}$$

  11. How does the sign of XED distinguish substitutes, complements and unrelated goods?

    $XED > 0$ = substitutes (a rise in B's price raises demand for A); $XED < 0$ = complements (a rise in B's price lowers demand for A); $XED = 0$ = unrelated goods. The larger the absolute value, the stronger the relationship.

  12. Define price elasticity of supply (PES) and give its formula.

    PES measures the responsiveness of quantity supplied to a change in the good's own price: $$PES = \frac{\%\,\Delta Q_s}{\%\,\Delta P}$$ It is normally positive.

  13. Classify supply by the value of PES.

    $PES = 0$ perfectly inelastic (vertical); $0 < PES < 1$ inelastic; $PES = 1$ unit elastic; $PES > 1$ elastic; $PES = \infty$ perfectly elastic (horizontal).

  14. List the main determinants of price elasticity of supply.

    Spare (unused) productive capacity, availability of stocks/inventories, ease and speed of switching factors of production, mobility of factors, and the time period — supply is more elastic in the long run than the short run.

  15. What is an indifference curve?

    A curve showing all combinations of two goods that give a consumer the same level of total utility (satisfaction), so the consumer is indifferent between any point on it.

  16. State the four standard properties of indifference curves.

    They slope downward (negative gradient), are convex to the origin (diminishing MRS), never intersect one another, and higher curves (further from the origin) represent higher utility.

  17. Define the marginal rate of substitution (MRS) and relate it to marginal utilities.

    MRS is the rate at which a consumer will give up good Y for one more unit of good X while keeping utility constant — the slope of the indifference curve: $$MRS_{XY} = -\frac{\Delta Y}{\Delta X} = \frac{MU_X}{MU_Y}$$

  18. What is a budget line, and what is its slope?

    A budget line shows all combinations of two goods a consumer can afford given income $M$ and prices $P_X, P_Y$, i.e. $P_X X + P_Y Y = M$. Its slope is the negative price ratio $-\dfrac{P_X}{P_Y}$.

  19. State the consumer's optimum (utility-maximising) condition using indifference curves.

    The consumer maximises utility where the budget line is tangent to the highest attainable indifference curve, i.e. where MRS equals the price ratio: $$\frac{MU_X}{MU_Y} = \frac{P_X}{P_Y}$$

  20. Distinguish the substitution effect from the income effect of a price change.

    The substitution effect is the change in quantity demanded due to the change in relative prices, holding real income (utility) constant. The income effect is the change in quantity demanded due to the change in real purchasing power caused by the price change.

  21. For a normal good, how do the income and substitution effects combine after a price fall?

    Both effects work in the same direction: the substitution effect and the income effect both increase quantity demanded, so demand definitely rises — reinforcing the downward-sloping demand curve.

  22. What is a Giffen good, and how do the income and substitution effects behave for it?

    A Giffen good is a strongly inferior good for which the negative income effect outweighs the substitution effect, so a price fall reduces quantity demanded — producing an upward-sloping demand curve.

  23. What does behavioural economics study, and how does it differ from the traditional model?

    Behavioural economics studies how psychological, cognitive and emotional factors affect economic decisions. Unlike the traditional model of the fully rational, self-interested 'homo economicus', it recognises bounded rationality and systematic biases.

  24. Define bounded rationality and bounded self-control.

    Bounded rationality: people have limited information, time and mental processing power, so they satisfice (choose 'good enough') rather than fully optimise. Bounded self-control: people know what is best but lack the willpower to act on it (e.g. failing to save).

  25. Explain anchoring and the availability heuristic as behavioural biases.

    Anchoring: people rely too heavily on an initial reference value (the 'anchor') when making decisions. Availability heuristic: people judge the likelihood of events by how easily examples come to mind, overweighting recent or vivid events.

  26. What is loss aversion, and how does it relate to the endowment effect?

    Loss aversion means people feel the pain of a loss more strongly than the pleasure of an equivalent gain. The endowment effect follows: people value a good more highly simply because they own it, demanding more to give it up than they would pay to acquire it.

  27. What is a nudge, and give an example of choice architecture.

    A nudge is a design of choices that gently steers behaviour without banning options or changing economic incentives. Example: making pension saving the default option (auto-enrolment) so people must opt out rather than opt in.

  28. What is 'framing' in behavioural economics?

    Framing is the way choices are presented, which affects decisions even when the underlying options are identical — for example, describing food as '90% fat-free' rather than '10% fat' influences consumer choice.

  29. What is the paradox of value (diamond–water paradox), and how is it resolved?

    Water is essential yet cheap while diamonds are non-essential yet expensive. It is resolved by marginal utility: because water is abundant, its marginal utility (and price) is low, whereas scarce diamonds have high marginal utility and price. Price reflects marginal, not total, utility.

  30. Distinguish substitute goods from complementary goods and state how each shifts demand.

    Substitutes are alternatives (e.g. tea and coffee): a rise in one's price raises demand for the other (positive XED). Complements are used together (e.g. cars and petrol): a rise in one's price lowers demand for the other (negative XED).

  31. Why does a demand or supply shock have a bigger price effect when the other curve is inelastic?

    With an inelastic curve, quantity responds little to price, so the market must adjust mainly through price. For example, a supply fall for a good with inelastic demand causes a large price rise but a small fall in quantity; with elastic demand the price rise is small and the quantity fall large.

Economics Microeconomics: Markets and Consumers FAQ

What is in the Economics Microeconomics: Markets and Consumers syllabus?

Economics Microeconomics: Markets and Consumers is split into 5 chapters: Demand, Supply, Market Equilibrium, Elasticity and Consumer Behaviour. Together they contain 17 topics.

How many chapters are in Economics Microeconomics: Markets and Consumers?

5 chapters, containing 17 topics. The largest chapter is Market Equilibrium, with 4 topics.

Are there flashcards for Economics Microeconomics: Markets and Consumers?

Yes — a 51-card Microeconomics: Markets and Consumers deck, printed in full in the flashcards section of this page and available in the Examius app with spaced repetition. The free plan covers one exam of your choice, including its flashcards; Examius Pro, a one-time purchase, unlocks every other exam and deck.