Econ Flashcards
Principle 1
people face trade offs
principle 2
cost of something is what you give up to get it
principle 3
rational people think at the margin
principle 4
people respond to incentives
principle 5
Trade can make everyone better off
principle 6
markets are usually a good way to organize economic activity
principle 7
Governments can sometimes improve market outcomes
principle 8
a countries standard of living depends on its ability to produce goods and services
principle 9
prices rise when the government prints to much money
principle 10
society faces a short tradeoff between inflation and un-employment
what affects quantity supplied?
Price of good itself changes
What affects quantity demand supplied?
Price of the good has changed
What affects demand?
price of good, income, prices of relative goods, expectations , number of buyers, tastes
what affects Supply?
input prices, tech, number of sellers, expectations, price of related goods
what affects price?
Supply and demand in the market
what makes the demand curve shift to left
decrease in income, price of related goods, Tastes and preferences, population and demographics, expectations
what makes demand curve shift right?
increase in income, price of related goods, Tastes and preferences, population and demographics, expectations
what makes supply curve shift right?
increase in tech, price of related goods, state of nature(cold weather-> buy coat), expectations, number of sellers, (decrease input price)
what makes supply curve shift left?
decrease in tech, price of related goods, state of nature (EX: covid), expectations, number of sellers, (increase) input prices
what is equilibrium price
the price when the supply curve and demand curve intercept
what is the EQN of marginal benefit
Total revenue/ Output
What is the EQN of marginal cost
Total cost/ output
What is a substitute
When the price of a substitute increases, demand shifts up
When the price of a substitute decreases, demand shifts down
EX:coke pepsi
what is a compliment item
Complements are two goods for which an increase in the price of one leads to a decrease in the demand for the other;
When the price of a complement increases, demand shifts down
When the price of a complement decreases, demand shifts up
EX:cream and sugar
Equilibrium quantity change
The quantity supplied and the quantity demanded at the equilibrium
price.
I The quantity where the demand curve intersects the supply cur
absolute advantage
- the ability of an induvial to produce more of a good or service than competitors, using the same amount of resources
The ability to produce the same amount of goods with fewer resources
comparative advantage
- The ability of an individual to produce a good or service at a lower opportunity cost than competitive
Comparison among producers of a good or service according to their opportunity cost
What happens when there is a surplus
A situation in which quantity supplied is greater than quantity
demanded.
I Surpluses exist at any price above the market clearing price.
I Sellers will compete amongst themselves, driving the price dow
what happens when there is a shortage
A situation in which quantity demanded is greater than quantity
supplied.
I Shortages exist at any price below the market clearing pric
What makes changes in market equilibrium?
Equilibrium may shift due to changes in the variables that affect supply and demand, Happens in most markets from time to time
Supply and demand in equilibrium can occur simultaneously,
To analyze changes in equilibrium:
Determine whether the events are shifting supply or demand curve(or both),
Determine the direction of the shift,
Use the diagram to observe how the shift changes equilibrium price and quantity
