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Microeconomics 201 > Econ Exam 1: Feb 6 > Flashcards

Econ Exam 1: Feb 6 Flashcards

1
Q

Economics

A

the study of how society produces, exchanges, and consumes goods and services in the face of economic scarcity

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2
Q

Economic Scarcity

A

Society/individuals have infinite wants/desires, and an insatiable appetite for “stuff”

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3
Q

Absolute Scarcity

A

Don’t have raw material, don’t get finished product. ex- no bauxite=no aluminum foil

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4
Q

Commodities

A

Satisfy our wants and desires

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5
Q

Goods

A

Tangible items (car, bike, candy etc)

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6
Q

Services

A

Intangible (haircut, legal advice etc)

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7
Q

What are the 4 categories of resources?

A

Labor, Land, Capital, Entrepreneurship

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8
Q

Labor

A

all human effort that goes into production

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9
Q

Land

A

all natural resources used for production

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10
Q

Capital

A

machiner, plant and equipment used in production

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11
Q

Entrepreneurship

A

innovator or risk taker

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12
Q

What are the resources earnings?

A

Labor~wages
Land~rent
Capital~interest
Entrepreneurship~profits

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13
Q

Normal profits

A

need to be earned to just stay in business (to pay bills, put food on table)

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14
Q

Excess profits

A

profits earned that are over and above normal profits

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15
Q

What are the three economic agents?

A

households, firms, government

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16
Q

Households

A

provide resources (labor) and consume goods/services

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17
Q

Firms

A

provide goods/services and purchase resources ex-retailers, wholesalers etc.

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18
Q

Government

A

plays supporting role in overall process

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19
Q

Market

A

a context in which the voluntary exchange btwn a buyer and a seller of a good or service takes place, always changing
ex-Amazon, store, catalog, online etc.

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20
Q

What are the two fields of study of economics?

A

Macro and Micro

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21
Q

What are the four economic issues/goals?

A

Efficiency, Equity, Stability, Economic Growth

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22
Q

Efficiency

A

making the best possible use of resources when trying to achieve something

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23
Q

Technical efficiency

A

efficient use of resources when producing a good or service

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24
Q

Allocative efficiency

A

the efficient allocation of a society’s scare resources

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25
Q

What are the 4 questions of economics?

A

What to produce? How to produce? How much to produce? Who is our market?

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26
Q

How do we allocate resources?

A

1) Prices & 2) Competitive Markets

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27
Q

Equity

A

refers to the way society’s output is distributed-is it fair? (judgement call, no right answer)

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28
Q

What are two methods to redistribute income?

A

transfer payments and taxes

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29
Q

Stability

A

Price and employment contribute

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30
Q

Price

A

CPI or Consumer Price Index, high CPI means rising inflation, measures price of typical household goods

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31
Q

Employment

A

measured by unemployment rate

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32
Q

Economic Growth

A

refers to the substantial and sustained increase in the nations income or output (substantial meaning 5-5.5% increase)

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33
Q

Macroeconomics

A

study of the determination of economic aggregates such as total employment, total output, and price level, look at totals for whole economy

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34
Q

Microeconomics

A

the study of the efficient allocation of relatively scare resources and the distribution of income

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35
Q

theory

A

tries to explain why or how things happen in the real world

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36
Q

Abstraction

A

ignoring many details to focus on the most important elements of a problem. Why? - millions of different variables, not enough time to study all

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37
Q

Opportunity Cost

A

the value of the benefit of the BEST alternative when a choice is made, slope of PPF curve, slope flat= low opp cost, slope steep= high opp cost

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38
Q

Positive Statement

A

one that states what is- deals in fact and explanation (something that is true)

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39
Q

Normative Statement

A

one that involves a value judgement (an opinion) such as on Meet The Press

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40
Q

Independent Variable

A

independent of the other variables, changes on its own

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41
Q

Dependent Varibale

A

Dependent on the other independent variable(s)k. A change in the ind var causes a change in this one

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42
Q

Slope

A

the change in the dependent variable when the independent variable changes by one unit

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43
Q

Circular Flow Diagram

A

visual model of the economy that shows how dollars flow through markets among households and firms

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44
Q

Production Possibilities Frontier (PPF)

A

a graph that show the combos of output that the econ can possibly produce given the available factors of production and avail. production technology, can show trade offs that occur

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45
Q

efficient outcome

A

economy is getting all it can from the scare resources avail. Points lie on PPF curve

46
Q

inefficient outcome

A

economy is producing less than it could from the resources it has available. Points lie below PPF curve

47
Q

Feasible outcome

A

production level that can occur with current level of resources avail. If point is above/outside PPF it is not feasible.

48
Q

What ideas does the PPF highlight?

A

scarcity, efficiency, trade-offs, opportunity cost, economic growth

49
Q

Market

A

a group of buyers and sellers of a particular good or service (buyers det. demand, sellers det. supply) can be organized or not

50
Q

What are price an quantity determined by?

A

they are determined by all buyers an sellers

51
Q

Competitive Market

A

a market in which there are many buyers and many sellers so that each individual has a negligible impact on market price

52
Q

Perfectly Competitive Market

A

highest form of competition, 2 characteristics

1) goods offered for sale are exactly same
2) numerous buyers/sellers so not one has any influence over market price

53
Q

Monopoly

A

market with only one seller

54
Q

Quantity Demanded

A

the amount of good that buyers are willing and able to purchase

55
Q

Law of Demand

A

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

56
Q

Demand Schedule

A

a table that shows the relationship between the price and quantity demanded

57
Q

Market Demand

A

sum of all the individual demands for a particular good or service

58
Q

How does an increase in demand affect the demand curve?

A

curve shifts to right

59
Q

How does a decrease in demand affect the demand curve?

A

shifts curve to the left

60
Q

What variables can shift a demand curve?

A

income, prices of related goods, tastes, expectations, # of buyers

61
Q

Normal good

A

a good for which , other things equal, an increase in income leads to an increase in demand

62
Q

Inferior good

A

a good for which, other things equal, an increase in income leads to a decrease in demand

63
Q

substitutes

A

two goods for which an increase in price of one leads to an increase in demand for the other

64
Q

complements

A

two goods for which an increase in the price of one leads to a decrease in demand for the other

65
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell

66
Q

Law of Supply

A

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises

67
Q

Market Supply

A

sum of all the supplies of all sellers

68
Q

What happens to the supply curve if there is an increase in supply?

A

The supply curve shifts to the right

69
Q

What happens to the supply curve if there is a decrease in supply?

A

The supply curve shifts to the left

70
Q

What happens to supply if there is advances in technology?

A

supply increases because labor costs decrease

71
Q

Equilibrium

A

a situation in which the market price has reached the level at which quantity supplied equals the quantity demanded

72
Q

Do markets naturally move towards equilibrium?

A

yes, actions of buyers and sellers naturally move markets towards equilibrium

73
Q

Surplus

A

a situation in which quantity supplied is greater than quantity demanded “situation of excess supply”

74
Q

Shortage

A

a situation in which quantity demanded is greater than quantity supplied “situation of excess demand”

75
Q

What do price increases cause in terms of supply and demand?

A

Price increases cause quantity demanded to fall and quantity supplied to rise

76
Q

Law of Supply and Demand

A

the claim that price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance

77
Q

What is a shift in the supply (or demand) curve called?

A

“change in supply” or “change in demand”

78
Q

What is movement along fixed supply (or demand) curve called?

A

“change in quantity supplied” or “change in quantity demanded”

79
Q

Vertical Intercept

A

the value of the dependent variable when the independent variable equals 0.

80
Q

Production Possibilities Curve

A

Shows the maximum alternative combinations of two goods that an economy can produce at a given time, with a given stack of resources a given level of technology, and fully employed resources

81
Q

Why does the PPC have a negative slope?

A

It shows the opportunity cost because we live in a world with scarcity

82
Q

What is the shape of the PPC?

A

Curve concave to origin

83
Q

What does the PPC show about opportunity cost?

A

At first, loss of production of one product is minimal, but as you use more resources to make the other product, you sacrifice an ever increasing amount of the first product to make the second

84
Q

What kind of curve does stable opportunity cost create?

A

It creates a straight line, it happens very rarely because few products use the exact same resources

85
Q

What aspects of Economics are evident in the PPC?

A

math, opportunity cost, scarcity, efficiency, resources, 4 econ questions, abstraction, theory, economic growth, production, commodities, allocative efficiency, choices

86
Q

What four functions do market prices perform?

A

1) Resource Allocation
2) Give a rel. idea of value of goods
3) Info about the future
4) Incentives: Households go to work, firms produce goods/services

87
Q

Complete Market Demand Function

A

tells us the quantity that consumers are willing and able to buy at all alternative market prices UNDER ALL MARKET CONDITIONS

88
Q

Px

A

Price of good x

89
Q

Yc

A

income of consumers

90
Q

Nc

A

number of consumers

91
Q

Tc

A

tastes and preferences of consumers

92
Q

Ps

A

price of substitute goods for x

93
Q

Pc

A

price of complimentary goods for x

94
Q

Yd

A

income distribution

95
Q

Ec

A

expectations of consumers of good x

96
Q

Dx= f( Px, Yc, Nc, Tc, Ps, Pc, Yd, Ec, …)

A

Complete Market Demand Function.

97
Q

Substitute

A

if price increases on one good, there will be an increase in demand for other good

98
Q

Compliments

A

if price increases on one good, there will be a decrease in demand of the other

99
Q

Ceteris Paribus (CP)

A

all other variables held constant

100
Q

Single Market Demand Function

A

tells us the quantity that consumers are willing and able to buy at all alternative market prices, ceteris paribus

101
Q

Dx=F(Px)

A

Demand Function

102
Q

Buyer’s Reservation Price

A

the last price at which a consumer will purchase the good.

103
Q

Law of Demand (lecture def)

A

In general, there is an inverse or negative relationship between the quantity of (x) consumers are willing and able to buy and the price c.p.

104
Q

What are the three reasons why law of demand holds true?

A

1) Law of Diminishing Marginal Utility
2) Income Effect
3) Substitution Effect

105
Q

Law of Diminishing Marginal Utility

A

If we take an individual consumer and a bundle of quantities of a good, over the relevant range, marginal utility received will be positive but declining as units of consumption increase

106
Q

Utility

A

the satisfaction a consumer receives from consuming a good

107
Q

Total Utility

A

the total satisfaction received from consuming a certain quantity of a good.

108
Q

What does marginal mean?

A

EXTRA

109
Q

Marginal Utility

A

the extra utility that is brought about by the addition of one more unit of the good

110
Q

Marginal utility is the _____ of the total utility curve.

A

Slope, derivative

111
Q

Income Effect

A

A price increase of good (x) will decrease the relative income (purchasing power) of consumers.

112
Q

Substitution Effect

A

As the price of good (x) rises, consumers will purchase more of a substitute good (w).

Microeconomics 201 (9 decks)

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