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SPRING 2022: TERMÍNALO! > ECON 251 Exam 1 > Flashcards

ECON 251 Exam 1 Flashcards

1
Q

what is economics?

A
  • a social science that studies the choices we make as we cope with scarcity; the incentives that influence and reconcile our choices
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2
Q

what is a normative statement/normative analysis?

A
  • measures of opinion or judgment; CANNOT be checked against facts
    ex. “the unemployment rate is too high”
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3
Q

what does ceteris paribus describe?

A
  • “all else being the same”

way of making economic decisions

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4
Q

what is scarcity?

A
  • Limited quantities available; we’re not able to get everything that we want
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5
Q

what are the 4 categories of factors of production?

A
  1. land/natural resources
  2. labor (there aren’t infinite people to do every single task that needs doing)
  3. capital (physical capital ONLY; tools instruments machines used to produce goods and services)
  4. entrepreneurship - (organization of the other 3 resources) –> entrprenuers develop new ideas, drive econ progress
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6
Q

is money a factor of production? why or why not?

A
  1. NO
  2. because it can’t be used to produce goods or services (can be burned to make a fire ig lmao dassit)
  3. because money does nothing productive for us. Money cannot create anything. Money can, however, buy you natural resources like cocoa eggs and sugar. Bowls, spoons, ice cream
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7
Q

which factor of production earns the most income?

A
  1. LABOR
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8
Q

what are positive vs negative incentives? what are their equivalents?

A
  1. Positive incentives are the ones that encourage us to do something, more likely to make that choice —> BENEFITS
  2. Negative incentives discourage us and make us less likely to do something —> COSTS
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9
Q

what constitutes a rational choice?

A
  • a situation when benefits outweigh costs
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10
Q

what is an object’s opportunity cost?

A
  • the highest valued alternative that you have to give up to get it; ex. OC of going to college –> 10,000 in tuition that could go to other things
  • doesn’t have to be money (the $$ is not a cost, but what you could otherwise buy with the money is)
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11
Q

what is the production possibilities frontier (PPF)?

A

p34

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12
Q

what is a comparative advantage?

A
  • when a person’s Opp Cost for producing a good is LOWER than the OC for someone else to produce the same good
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13
Q

what is an absolute advantage?

A
  • a person who is more productive than others; comparison of productivity
  • can produce faster, OR more in the same amount of time
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14
Q

what is a sunk cost? how is it different from OC?

A
  • an irreversible expense; no way to avoid it
  • ex. costs of college: paying for your dorm is a “sunk cost” cause you would have to pay to live SOMEWHERE even if you weren’t at school; also food, etc.
  • ex. waiting 30 mins for dinner res –> end up waiting 45 ins. told have to wait an additional 30mins. SC = is the 45 mins you already waited
  • OC is an alternative, you don’t HAVE to choose that option, so there’s costs/benefits associated with it
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15
Q

opportunity cost: what is an explicit cost?

A
  • MONEY; literally coming out of a bank account/from your resources
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16
Q

opportunity cost: what is an implicit cost?

A
  • a cost that is hypothetical; ex. forgone wages, if i WEREN’T in college, i would be making x amount of money
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17
Q

what’s the econ way of saying additional?

A
  • marginal ex. “marginal benefits”, “marginal cost”
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18
Q

what happens to marginal benefits as quantities rise?

A
  • marginal benefits FALL as quantity rises;

- the more you have of 1 thing, the less you value the addition of 1 more

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19
Q

what happens to marginal costs as quantities rise?

A
  • marginal costs RISE as quantity rises

- ex. college education; each year you’re in college that’s another year of money you could have made working

20
Q

what should happen to quantity when MB and MC are greater/lower than the other?

A

when MB> MC –> increase Q

when MC > MB –> decrease Q

MC = MB –> rational choice

21
Q

what is a positive statement/ analysis?

A
  • statement about “what is”; may be right or wrong but cn be checked against facts
22
Q

what are rules of comparative advantage? (2)

A
  1. if 1 person has CA in 1 task —> the other person must have CA in the other task (only works for 2 ppl x 2 tasks)
  2. NO ONE can have a CA in every task (ex. really good athlete, can’t play every position at once)
23
Q

what is a production possibilities frontier (PPF)?

A
  • graph of the MAX output of a product that can be produced
24
Q

characteristics of individual PPF curves (3)

A
  1. slope will ALWAYS be negative
  2. magnitude of slope always reflects the marginal cost of variable “x” [[inverse of slope = MC of variable “y”]]
  3. Flatter PPFs have lower slope –> lower MC

[[X axis shows variable of interest]]

25
Q

what are marginal costs?

A
  • what is given up (of the other product) by producing 1 of the other product
  • ex MC of “x” = rate of product y / rate of product x
26
Q

characteristics of economy-wide PPF curves (5)

A
  1. assign tasks based on who has comparative advantage
  2. relationship is not linear
  3. points BELOW the PFF = represent inefficient production
  4. points ABOVE the PFF = represent infeasible production
  5. points ON the PPF = represent efficient production; producing at the lowest possible cost
27
Q

economy-wide PPF curves: what is the point of specialization?

A
  • the point where 1 person reaches their max production amount
28
Q

PPFs: what is production efficiency?

A
  • producing goods at the LOWEST possible cost; “what’s the cheapest way to produce?”
29
Q

PPFs: what is allocative efficiency? can it be shown on a PPF?

A
  • using resources where they are most highly valued; PPFs can’t tell us how; “what do people actually want?”
30
Q

shifts in PPFs ()

who has CA?
need X intercept, Y intercept, and point of specialization (each only doing task for which they have CA)

A
  1. changes in quantity/access to resources or productivity of resources (ex. training programs for workers that increase their productivity) —-> shift in PPF
    - shifts to the RIGHT –> economic growth

2.

31
Q

ch 3: what is demand?

A
  • the max quantity of something consumers are WILLING and ABLE to purchase at a various prices; have to want something AND be able to afford it ; NOT dependent on price
  • from the consumer’s perspective,
32
Q

what is the law of demand?

A
  • describes the inverse relationship between P and QP
  • as price increases –> the quantity demanded decreases
  • as price decreases –> quantity demanded increases
33
Q

characteristics of the demand curve (3)

A
  1. Price - Y axis (but independent v)
    QD - X axis (but dependent v)
  2. utilize slope intercept eq (y=mx+b) to solve for QD; is a calculation of marginal benefit
  3. shift to the RIGHT –> increase in demand
    shifts to the LEFT –> decrease in demand
34
Q

5 factors (other than price) that affect demand curve

A
  1. income
    • normal goods (D rises when income rises, vv)
    • inferior goods (D rises when income falls, vv) [ex. the more income you have, the less need you have for ramen noodles lmao]]
  2. complements in consumption
  3. future expectations
    • ex. if we expect price to rise, current D increases
  4. number of buyers/population
    • more ppl = more demand
  5. tastes and preferences
    • what do ppl like? what’s popular rn?
35
Q

what are complements in consumption?

A
  • goods that are used/bought together

ex. increasing the price of 1, decreases the demand of the other

36
Q

what is quantity demanded?

A
  • change in the quantity demanded is a change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same. 2 3
37
Q

what is supply?

A
  • the max quantity a SELLER is willing and able to sell at various prices
38
Q

what is the law of supply?

A
  • price and quantity supplied are POSITIVELY related
  • as price increases –> the quantity supplied INCREASES
  • as price decreases –> quantity supplied DECREASES
39
Q

characteristics of the supply curve (4)

A
  1. Price - Y axis (but independent v)
    QS - X axis (but dependent v)
  2. utilize slope intercept eq (y=mx+b) to solve for QS; is a calculation of marginal cost
  3. supply curve is always POSITIVE
  4. shift to the RIGHT –> increase in supply
    shifts to the LEFT –> decrease in supply
40
Q

5 factors (other than price) that affect the supply curve

A
  1. input prices
    • INCREASE wages paid to workers
  2. prices of related goods IN PRODUCTION
    • substitutes in production: goods produced with same resources; alternatives [ex. choco mint cupcakes instead of thin mints] increase in price of a substitute –> REDUCTION in supply of good 1
    • TIENE K VER CON “SUPPLY”
    • complements in production: goods that are automatically produced together; aka “by-products” [ex. a saw mill cutting logs inherently produces sawdust; increase of price of beef –> increased supply in leather]
  3. future expectations
    • ex. if we expect price to rise, current S decreases (bc we want to wait to produce more)
  4. number of sellers
    • if there are more people selling a good –> there is more of that good available
  5. change in technology
41
Q

what happens when there’s simultaneous shifts in S + D?

A
  1. one component of equilibrium becomes INDETERMINATE (Ex. price, Q demanded)
  2. Must look at each shift INDIVIDUALLY
42
Q

what is elasticity?

A
  • how responsive is a market to changes? (in price, in season of the year, etc.) ex. hot chocolate, gas
43
Q

what is the price elasticity of demand?

A
  • responsiveness of consumers to a change in price (

- when there’s a BIGGER change in QD based on a change in price –> that market is said to have MORE elasticity

44
Q

measures of elasticity

A
  • measured in “PERCENTAGE OF CHANGE” in price or quant demanded (a unit free measure)
  • always take abs value
  • 3 ranges of 3lasticity
    1. % Change in DEMAND > greater than > % change in PRICE ===== D is elalstic (bigger than 1)
    2. % Change in DEMAND < less than % < change in PRICE ===== D is inelastic (less than 1)
    3. % Change in DEMAND === equals === % change in PRICE ===== D is unit elastic (equal to 1)
45
Q

determinants of Elasticity

A
  1. Substitutes:
    • FEWER substitutes –> LESS E D
    • MORE subs —> MORE E D
    • if the price of ALL softdrinks goes up, there will b less reaction (ppl will still probably buy them) but if the price of JUST COKE goes up, there will be a bigger reaction –> people will buy other softdrinks (pepsi, dr p instead) ==== there’s MORE elasticity when there’s more subs (for coke), LESS E when fewer subs (for softdrinks in general)
  2. the portion of income/budget a purchase takes
    • smaller prop of income –> LESS Elast D (the change is not that relevant, nbd)
    • bigger prop of income —> MORE Elast D (bigger reaction, ex. doubled mortgage)
  3. Time (to make a decision)
    • MORE time –> more alternatives –> MORE E in D
    • LESS time –> fewer altrenatives –> LESS E in D
46
Q

what is revenue?

A
  • R = price x Quant Demanded
  • Raising price: the impact on revenue depends on how Qd changes
  1. if D is Elastic –> raising price decreases Qd (by a big amount) == R decreases
    • lowering price INCREASES Qd == R increases
  2. if D is Inelastic –> raising price DECREASES Qd (by a smaller amount) == R increases
    • lowering prices INCREASES Qd (by a small amount) == R decreases
  3. if D is = 1; there’s no changes in Qd or price –> indicates a Max or Min value of Revenue (at the midpoint of the Demand curve)

SPRING 2022: TERMÍNALO! (7 decks)

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