Chapter 1 Flashcards
3 Principles of Economics
optimization, equilibrium, empiricism
types of optimization
optimization in levels, optimization in differences
shifts in the demand curve (at least one of 5 things changes)
tastes and preferences, income and wealth, availability and prices of related goods, number and scale of buyers, buyers expectations about the future
reason for movement along a demand curve
changing the only the price of the good, holding all else constant
related goods
substitutes and complements
shifts in the supply curve (at least one of 4 things changes)
input prices, technology, number and scale of sellers, sellers’ expectations about the future
reason for movement along a supply curve
changing the only the price of the good, holding all else constant
Buyer’s Optimization Problem
preferences, prices, budget
3 measures of elasticity
price elasticity of demand, cross-price elasticity of demand, income elasticity of demand
qualities of a perfectly competitive market
all agents are price-takers, sellers produce identical goods,
free entry and exit, perfectly competitive input markers (?)
Seller’s Optimization Problem
Making the good, Costs of producing the good, Benefits from selling the good (profits)
invisible hand qualitites
the correct buyers buying and the correct sellers selling, each individual industry producing goods at minimum cost, the market economy as a whole producing the right amount of each good
reasons against free trade
National security concerns, Effects of globalization, Environmental and resource concerns, infant industry arguments, The Effects of Tariff (?)
Private Solutions to Externalities
bargaining, doing the right thing
government solutions to externalities
Command-and-control—direct regulation, Market-based policies—provide incentives
