Econ Test #1 Flashcards
increase in income leads to less of one product
inferior good
important to include for “if then statements” when applicable
substitubes vs compliments or inferior vs. normal
What is a point that is below ppf
innefficient use of resources
What is a point above ppf
infeasible
what is a point on ppf
efficient points
what happens when ppf moves on one axis
sectoral shift
what happens when ppf moves both axis (line stays parallel i think)
economy wide shift
budget contraint
the line. ppf. yeah
How do you find opportunity cost in a graph
the slope
shift in demand (how to show on graph)
demand line moves
diminishing marginal product
when time goes on, this can happen (marginal cost goes up)
perfectly competitive market
homogenous products.MANY SELLERSin extreme, the products are identical and perfect substitutes
cost vs price
cost is what producers pay. cost is what consumers pay
cost-benefit principle
identifying the costs and beneifts and pursing that of which the beneifts outweigh costs
economic surplus
total benefits - total costs. shows how much a decision has improved well-being
opportunity costs
the true cost of something is the next best alternative you have to give up to get it
production possibility frontier
shows the different sets of output that are attainable with your scarce resources
marginal principle
decisions about quantities should be made in increments. break it into marginal costs and benefits
marginal costs
the extra cost from one extra unit (so I don’t think this includes fixed costs)
rational rule
if something is worth doing, keep doing it until mb=mc
individual demand curve
a graph plotting the quantity of an item that someone plants to buy at each price
rational rule for buys
buy more of an item if the mb of 1 more is greater than or equal to the price
individual supply curve
a graph plotting the quantity of an item that a business plans to sell at each price
law of supply
tendency for quantitiy supplied to be higher when price is higher
diminishing marginal benefit
each additional item yields a smaller MB than the previous item
marginal product
the increase in output that arises from an additional unity of input (like labor)
planned economy
basically communism. centralized decisions are made about what is produced, how, by who, etc.
market economy
each individual makes their own production and consumption deciosns buying and selling
market
a setting bringing together potential buyers and sellers
equilibrium
when quantity supplies is equal to quatntity demanded
shifters of demand
- preferences
- expectations
-income
-type and # of buyers - price of related goods
shifters of supplies
- type + # of sellers
- expectations
- input prices
- productivity
- prices of other products sellers could do/make
price elasticity of demand def
a measure of how responsive buyers are to price changes
price elasticity of demand equation
(%change in Q demanded)/(%change in P)
price elasticity of demand measuring
-1 < ED<1 = inelastic
total revenue equation
price x quantity
income elasticity of demand def
a measure in how responsive the demand for a good is to changes in income
income elasticity of demand equation
(%change in Q demanded)/(%change in income)
income elasticity of demand measuring
if negative= inferior goods , if positive = normal good
price elasticity of supply def
a measure of how responsive sellers are to price changes
price elasticity of supply equation
(%change in Q supplied)/(%change in P)
price elasticity of supply measuring
always positive
what will a perfectly inelastic look like
vertical
to find %change
midpoint formula : (Second x - first x) / (( Second X+ first x)/2)
price ceiling
maximum price sellers can charge
price floor
minimum price sellers can charge
binding price floor/ceiling
prevents hitting equalibrium
difference in differences
( treatment after P - Treatment before P) - ( control after P - control before P)
What are the criteria for a control
control must trend in same direction and magnitude as treatment AND it must be unaffected by treatment
economic surplus
total benefits minus total costs
economic efficiency
market is more economically efficient if it yields more economic surplus
efficient outcome
yields largest possible economic surplus
consumer surplus
the economic surplus you get from buying something (MB-price)
market failure
when the forces of supply and demand lead to an inefficient outcome
producer surplus
economic surplus you get from selling something (price-MC)
deadweight loss
how far economic surplus falls below efficient outcome ( economic surplus at efficient quantity)- (actual economic surplus)
how to find deadweight in a graph
the triangle between equilibrium and actual number. Then just figure out area of the triangle
government failure
when a government policy leads to worse outcomes
Cross price elasticity of demand def
a measure of how responsive the demand of one good is to the price of another
Cross price elasticity of demand equation
(%change in quantity demanded) / ( %change in price of another good)
Cross price elasticity of demand measuring
if negative= compliments. If positive= substitutes
