Concepts Flashcards

1
Q

What is Economics

A

The study of the allocation of scare resources

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2
Q

What is scarcity

A

When the demand for a good or service is greater than the quantity of it

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3
Q

What is opportunity cost?

A

The value of the next best use of a scarce resource

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4
Q

What is positive analysis

A

Analysis of how things actually work

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5
Q

What is normative analysis

A

An analysis of how things should work

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6
Q

What is the law of demand?

A

As price increases, quantity demanded decrease

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7
Q

What is demand

A

The desire, willingness, and ability for consumers to pay a certain price for a certain good.

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8
Q

What does ceteris paribus mean?

A

All else equal

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9
Q

What shifts demand?

A

Population, income, preferences, quality of a good, price of substitutes

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10
Q

What is supply?

A

The total quantity of a good that producers are willing to to provide

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11
Q

Why does demand slope down?

A

Because as price increases, consumers’ marginal willingness to pay decreases. This is due to the law of demand.

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12
Q

Why does supply slope up?

A

Rising prices induce additional supply for suppliers who have a opportunity cost of giving up a resource.

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13
Q

What are diminishing marginal returns?

A

Diminishing marginal are proportionally smaller profits or benefits derived from producing a good as more money is invested in it.

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14
Q

What are shifts In the supply curve?

A

Anything that changes opportunity cost: wages, price of inputs, taxes, subsidies, trade barriers, tech.

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15
Q

What causes movement along the supply curve

A

Changes in quantity of a good.

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16
Q

What is Equilibrium?

A

Market equilibrium occurs when the state in which supply and demand balance each other and no force is acting to change the outcome. On a graph, it is when the supply and demand curves intersect.

17
Q

What is supply Schedule

A

How much is supplied at every price

18
Q

What is Marginal Willingness to Supply

A

The price at which the marginal supplier covers her marginal opportunity cost

19
Q

How does tax change equilibrium

A

Shifts supply curve up and left

20
Q

How does a price floor change equilibrium?

A

Shifts the supply curve up and left

21
Q

How does a change in supply effect equilibrium (housing)

A

An increase in supply, all other things unchanged, will cause the equilibrium price to fall and quantity demanded will increase. A decrease in supply will cause the equilibrium price to rise and quantity demanded will decrease.

22
Q

What is the equation for Elasticity?

A

% Change in Quantity / % Change in Price

23
Q

What is Elasticity of demand?

A

Change in Q / Change in P * P/Q

24
Q

Definitions of Elasticity

A

|Elas| < 1 ) “Inelastic”
|Elas| > 1 ) “Elastic”
|Elas| = 1 ) “Unit Elastic

25
Q

What happens to Elasticity with changes in Demand

A

When prices fall demand rises and quantity demanded rises, when prices rise demand falls and quantity demanded falls

26
Q

What is consumer surplus?

A

Consumer surplus is the total willingness to pay, of all consumers, minus the total amount paid.

27
Q

What is producer surplus?

A

Producer surplus is the amount received by sellers, minus the opportunity of cost of selling (producing).

28
Q

What is total surplus?

A

Total Surplus is the sum of Consumer and Producer Surplus

29
Q

What is deadweight loss?

A

A Deadweight Loss (“DWL”) is the amount of total surplus that could be obtained under some other market quantity, but for some reason is not obtained.

30
Q

What does an excise tax do?

A

A parallel vertical shift in the marginal opportunity cost of sellers so a parallel vertical shift of the supply curve.

31
Q

What is marginal benefit

A

The change in benefit that occurs with a small change In x

32
Q

What is the budget constraint equation?

A

P1X1 + P2X2 = Y

33
Q

What is the slope of the indifference curve?

A

Solve: MU1change in x1 + MU2change in x2 = 0 = = MU1/
MU2

34
Q

What is the substitution effect?

A

The substitution effect is the change in a consumer’s consumption choices that results from a change in the relative prices of two goods

35
Q

What is the Income effect?

A

The income efect is the change in a consumer’s choices that results from a change in the purchasing power of the consumer’s income.

36
Q

Why does demand slope down

A

Substitution Effect: increased slope of budget line pushes the optimum to the “Northwest,” more x2, less x1. Change in p1/p2 is pure opportunity cost effect. Income Effect: increased price pushes budget line down, like decreased income, with a normal good this reduces x1