Blackstock test 1 microeconomics 202 Flashcards
define economics
the study of how a society uses its scarce resources to supply the insatiable wants and needs of said society both now and in the future
the study of how a society uses its scarce resources to supply the insatiable wants and needs of said society both now and in the future
economics
define need
something that must have, or you will die
something that must have, or you will die
need
define want
something that will make life better, but you won’t die if you don’t have it
something that will make life better, but you won’t die if you don’t have it
want
define a good
any tangible item which satisfies the criteria of a want or need
any tangible item which satisfies the criteria of a want or need
good
define a service
any intangible, but useful activity which meets the criteria of a want or need
any intangible, but useful activity which meets the criteria of a want or need
service
what do economists do?
in a broad sense, they study human action
in a broad sense, they study human action
what economists do
define praxeology (Greek word)
study of human action
study of human action
praxeology (Greek word)
areas of economics
-marketing
-accounting
-management
-finance
-marketing
-accounting
-management
-finance
areas of economics
what are Econ majors taught?
they’re taught to be real-life problem solvers through the scientific method
they’re taught to be real-life problem solvers through the scientific method
Econ majors
Incentives matter because…
they can come in the form of a rewards or a threat of violence
they can come in the form of a rewards or a threat of violence
incentives
positive analysis
claims that attempt to describe the world as it is
claims that attempt to describe the world as it is
positive analysis
normative analysis
claims that attempt to describe the world as it should be, or as people believe it so to bo (without supporting evidence)
claims that attempt to describe the world as it should be, or as people believe it so to bo (without supporting evidence)
normative analysis
define ceteris paribus (Latin word)
all other things held equal
all other things held equal
ceteris paribus (Latin word)
define market
the coming together of buyers and sellers whose joint decisions determine the price
the coming together of buyers and sellers whose joint decisions determine the price
market
what are the factors of production
-land
-labor
-capital
-technology
(TLLC)
-land
-labor
-capital
-technology
(TLLC)
factors of production
define consumer goods
the things we, as consumers, buy and bring home
the things we, as consumers, buy and bring home
consumer goods
define capital goods
tools and machines used to make consumer goods
tools and machines used to make consumer goods
capital goods
what is cartesian graphing?
a system that tells you your exact position on a graph (the graphs we’ve been doing since middle school)
a system that tells you your exact position on a graph (the graphs we’ve been doing since middle school)
cartesian graphing
who is Renee Decart?
a French mathematician who invented cartesian graphing
a French mathematician who invented cartesian graphing
Renee Decart
Production possibilities frontier
a graph which shows the combinations of output that the economy can possibly produce given the available land, labor, capital, and technology (the normal graphs we’ve been doing in class)
a graph which shows the combinations of output that the economy can possibly produce given the available land, labor, capital, and technology (the normal graphs we’ve been doing in class)
production possibilites frontier
define opportunity cost
what you give up when you make a choice
what you give up when you make a choice
opportunity cost
opportunity cost formula
explicit costs + implicit costs
explicit costs + implicit costs
opportunity cost formula
define explicit costs
actual out-of-pocket expenses
actual out-of-pocket expenses
explicit costs
define implicit costs
costs that do not include contractual payments
costs that do not include contractual payments
implicit costs
define absolute advantage
when one country can produce more than another country in absolute terms
when one country can produce more than another country in absolute terms
absolute advantage
define autarky
no trade (you only have what you made for yourself)
no trade (you only have what you made for yourself)
autarky
opportunity cost formula
what you must give up / what you want
what you must give up / what you want
Opportunity cost formula
define comparative advantage
the ability to produce at a lower opportunity cost then a competitor
the ability to produce at a lower opportunity cost then a competitor
comparative advantage
what are the 2 ways a country can move beyond its PPF?
-technological advances
-trade
-technological advances
-trade
2 ways a country can move beyond its PPF
trade will make both countries better. TF?
true
trade will make both countries worse. TF?
false
what’s the difference between a formula and an equation?
formula is the general guide, and equation is the formula with correctly plugged in numbers
define quantity demanded
the amount of a good or service which will be purchased at a specific price
the amount of a good or service which will be purchased at a specific price
quantity demanded
define demand
the amount of a good or service which will be purchased at any given price
the amount of a good or service which will be purchased at any given price
demand
define law of demand
as price rises, quantity demanded falls and as price falls, quantity demanded rises, ceteris paribus
as price rises, quantity demanded falls and as price falls, quantity demanded rises, ceteris paribus
law of demand
the change in price is the cause, the change in quantity is the effect. TF
true
the change in quantity is the cause, the change in price is the effect. TF
false
what direction is demand’s slope?
downward
what direction is supply’s slope?
upward
an increase in supply or demand is a shift…
to the right
a decrease in supply or demand is a shift…
to the left
5 common reasons demand will change
-change in tastes or preferences
-change in expectations
-change in laws
-change in income
-change in the price of other goods
(top lie pog)
-change in tastes or preferences
-change in expectations
-change in laws
-change in income
-change in the price of other goods
(top lie pog)
5 common reasons demand will change
when income rises, demand for ____ ____ will also rise and vice versa
normal goods
what income falls, demand for ____ ____ will also rise and vice versa
inferior goods
define substitutes
goods that are purchased instead of another good
goods that are purchased instead of another good
substitutes
define complements
two goods that are purchased together; when the price of GOOD A rises, demand for GOOD B falls and vice versa
two goods that are purchased together; when the price of GOOD A rises, demand for GOOD B falls and vice versa
complements
normal substitutes
close enough (Papa John’s and Johnny’s)
perfect substitutes
consumers can’t tell the difference (which electrical company you use)
imperfect substitutes
goods which satisfy an end goal, but have vastly different marginal rules (traveling by plane or car)
define the law of supply
when price rises, quantity supplied also rises, and vice versa (ceteris paribus)
when price rises, quantity supplied also rises, and vice versa (ceteris paribus)
law of supply
define quantity supplied
the amount of a good or service which will be produced at a specific price
the amount of a good or service which will be produced at a specific price
quantity supplied
define supply
the amount of a good or service which will be produced at any price
the amount of a good or service which will be produced at any price
supply
4 common reasons supply will change
-change in input prices
-change in technology
-change in expectations
-change in the number of sellers
(nose tip)
-change in input prices
-change in technology
-change in expectations
-change in the number of sellers
(nose tip)
4 common reasons supply will change
define shortage
when quantity demanded is greater then quantity supplied at a specific price
when quantity demanded is greater then quantity supplied at a specific price
shortage
define equilibrium
when quantity demanded equals quantity supplied and there are no unintended shortages or surpluses
when quantity demanded equals quantity supplied and there are no unintended shortages or surpluses
Equilibrium
define surpluses
when quantity supplied is greater than quantity demanded at a certain price
when quantity supplied is greater than quantity demanded at a certain price
surpluses
define elasticity
a measure of the responsiveness of an economic agent to a change in a variable
a measure of the responsiveness of an economic agent to a change in a variable
elasticity
elasticity demand formula
% change in quantity demanded / % change in price
% change in quantity demanded / % change in price
elasticity demand formula
rules of elasticity
if absolute value of answer is…
-greater than 1, elastic
-equal to 1, unitary elastic
-less than 1, inelastic
define inelastic
consumers are fairly responsive to a change in price
consumers are fairly responsive to a change in price
inelastic
define elastic
consumers are fairly unresponsive to a change in price
consumers are fairly unresponsive to a change in price
elastic
define price elasticity of demand
a measure of the responsiveness of a consumer to a change in price
a measure of the responsiveness of a consumer to a change in price
define price elasticity of demand
elements which help determine elasticity
-availability of close substitutes
-necessities vs. luxuries
-definition of market
-time horizon
what groups are most interested in elasticities?
-sellers
-government
midpoint method formula
(P2-P1)/[(P2+P1)/2]
(P2-P1)/[(P2+P1)/2]
midpoint method formula
define cross-price elasticity of demand
a measure of the responsiveness of consumers to a change in the price of another good
a measure of the responsiveness of consumers to a change in the price of another good
cross-price elasticity of demand
how do you know if it’s a substitute or a complement?
if your answer, before taking absolute value is positive, it’s a substitute; if it’s negative, it’s a complement
define income elasticity of demand
a measure of the responsiveness of consumers to a change in income
a measure of the responsiveness of consumers to a change in income
income elasticity of demand
how do you know if it’s an inferior or normal good?
if the answer is positive, it’s normal; if it’s negative, it’s inferior
the person who most highly values the good receives it. TF
T (this is a good economic phrase)
the person who most highly values the good does not receive it. TF
F
define price ceiling
the maximum, legal price which can be charged for a good or service
the maximum, legal price which can be charged for a good or service
price ceiling
3 facts about price ceiling
- an effective price ceiling always lies below equilibrium
- an effective price ceiling always causes a shortage
- an effective price ceiling always hurts the community in the long run
3 facts about price floor
- an effective price floor always lies above equilibrium
- an effective price floor always causes a surplus
- an effective price floor always hurts the community in the long run
define price floor
a minimum legal price which can be charged for a good or service
a minimum legal price which can be charged for a good or service
price floor
elasticity demand formula (normal method)
(P2-P1) / P1
(P2-P1) / P1
elasticity demand formula (normal method)
define excise tax
a tax charged on goods produced within a country (effects producer)
a tax charged on goods produced within a country (effects producer)
excise tax
if the demand curve is more inelastic than the supply curve…
then consumers will have to pay more tax
if the demand curve is more elastic than the supply curve…
then producers will have to pay more tax
define consumers’ surplus
the amount that consumers’ were willing to pay for a good or service but did not have to.
the amount that consumers were willing to pay for a good or service but did not have to.
consumers surplus
define producers’ surplus
the producers’ total revenue minus the producers’ opportunity cost
walk through calculating supply and demand
1) demand and supply equations will be given
2) set them equal to 0 and solve to get demand and supply intercepts
3) set demand and supply equations equal to each other to get equilibrium price
4) plug in equilibrium price into demand and supply equations to get equilibrium quantity (the new numbers should be equal)
5) equilibrium quantity x .5 x the difference between demand intercept and equilibrium price (to find consumers’ surplus) OR equilibrium price and supply intercept (to find producer’s surplus)
6) equilibrium price x equilibrium quantity = total revenue
7) total revenue - producers’ surplus = producers opportunity cost
define tariff
a tax placed on imported goods
a tax placed on imported goods
tariff
from 0 to QS is the amount our domestic ____ ____
producers produce
from 0 to QD is the amount domestic ____ ____
consumers purchase
what if there are leftovers of 0 to QS or 0 to QD ?
they are exported
