Basic Concepts of Economics — Flashcards

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Microeconomics studies the economic behaviour of the individual unit, such as a person, a household, or a firm. It focuses on individual prices, individual demand, and individual output. It is also ca…

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Macroeconomics deals with aggregates rather than individual quantities. It studies national income, total employment, aggregate demand, aggregate supply, and the general price level. It is also called…

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Microeconomics studies individual units like a firm, household, or commodity market, while macroeconomics studies the economy as a whole. Microeconomics focuses on price determination of individual go…

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Utility is the psychological satisfaction that a person gets from consuming a commodity. It is measured in utils. Utility is subjective, relative, abstract, and depends on the intensity of want.

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Utility is subjective because it differs from person to person. It is relative because it changes with time and place. It is abstract because it cannot be seen or touched. It is different from usefuln…

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Marginal utility is the addition made to total utility by consuming one more unit of a commodity. Prof. Chapman defined it as: "Marginal utility is addition made to total utility by consuming one more…

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MU = TU_n - TU_(n-1). Here, MU means marginal utility, TU_n means total utility from n units, and TU_(n-1) means total utility from n - 1 units.

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The law says that after consuming a certain amount of a commodity, the marginal utility from its subsequent units goes on diminishing. At the point of satiety, marginal utility becomes zero and total …