Exam 1 Flashcards
economics
knowledge concerned with production, consumption, and transfer of wealth
what is econ logic
1)people are rational: consumers want to maximize happiness
2)people respond to economic incentive
3)margin:decision making dynamically
what three questions does any society have to face
1)what to produce
2)how to produce it
3)who are they producing for
what are wants bigger than in econ
needs. in market context firms make money by giving people what they want
what type of market does the USA have
mixed market
what type of market is where the government provides the goods and service
socialism
what is marxism
who can own capital? basic theory of communism
opportunity costs
no matter how much money you have you cant have everthing, so you have to make choices which is scarcity
opportunity cost is bascially
what you give up
for PPF any point on the line is
possible/efficient
for PPF any point inside the line is
inefficient
for PPF any point outside the line is
not possible
what does slope represent in PPF curve
opportunity costs
what are the two views in econ
positive and normative
what is a positive view in econ
testable statements (may not be true)
-concerned with what is
what is a normative view in econ
this should be this way/not that way
-concerned with what ought to be
what results from an increase in stuff
1)econ growth 2) technlogical change 3)trade
what is econ growth
makes everyone better off b/c there is more stuff. Happier society. Smooth
what is technological change
more disruptive, less smooth compared to econ growth.
ex of technological change
transfer from combustion vehicles to electric cars
what results from doing something at the lowest opportunity cost
more stuff
tarriffs
importing taxes
demand
buying/purchasing side of the relationship
supply
producing/selling
what does demand help determine
amount people want to buy not how much people buy
what is an actual number and repreents the amount people want to buy?
quantity demanded
what are variables that shift market demand
-income
-prices of related goods
-tastes
-populations and demographics
-expected future prices
-natural disasters and pandemics
demand curve
shows relationship between the price of a product and the quantity of the product demanded
law of demand
inverse relationship between the price of a product and the quantity of the product demanded
income
income that consumers have available to spend effects their willingness and ability to buy a good
substitutes
goods and services that can be used for the same purpose
compliments
goods and services that are used together like hot dogs and hot dog buns
what is quantity dependent on
price of the good (price is independent)
does demand move on a graph
no just quantity demanded
what are variables that shift market supply
-prices of inputs
-technological change
-prices of related
-goods in production
-number of firms in the market
-expected future processes
-natural disasters
law of supply
firms produce more as prices go up
neo-classical
supply and demand are the driving force behind goods and services
austrian
interest rates determined by opinion of how individuals spend money
how does demand work on a graph
it is a pull, pulls things up and down
how does supply chain work on a graph
it pushes things
it s goes up P and Q go down. if s goes down P and Q go up
what is producer surplus
selling things for more than what the firm originally intended
surplus
too much of something
shortage
not enough of something
price floor
floor because price cant go under it (hitting the floor), sits higher on graph than ceiling
price ceiling
the mandated maximum amount a seller is allowed to charge for a product or service
consumer surplus
benefits consumer because price they are paying for product is less than what they were willing to pay
formula for consumer/producer surplus
area of a triangle
federal reserve
Private bank privately run (not government). It is a bankers bank or bank for banks
reserve requirement for federal bank
20%
save rate for federal bank
1%
house loan rate for federal reserve
7%
car loan rate for federal reserve
10%
what are most of the loans done by federal reserve
house and car loans
Federal Open Market Committee
group that dabbles in bond market: buy bonds banks and holding
market failures
demand supply model does not hit social optimal
causes of market failure
externalities and public goods
what is externality
benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service
example of externality
pollution
example of negative externality on the demand side of the makret
being able to smoke in any room
coase theorem
face deficiencies during externalities
-there are complete competitive markets with no trasnsaction costs and an efficient set of inputs and outputs an optimal decsion will be selected
what are the two features of pure private goods
exclusive and rival
what is exclsuive
easy mechanism to exclude someone frm having good (usually price)
what is rival
less of something from someone else
freerider
someone who benefits form good without putting money in
Lindahl
if you know peoples willingness to pay, charge that amount
consumption externalities
consuming a good causes either a positive or negative externality to a third party
elasticity
measure the responsiveness of quantity demanded and quantity supplied to changes in market price
does time make something more elastic
yes, more options after more time
does the availability of substitutes impact elasticity
yes, more substitutes, more elastic
does budget impact elasticity
yes, smaller share of an item in one’s budget ,more price inelastic demand is likely to be
price elasticity of demand formula
% change in quantity demanded/% change in price
demand is elastic
QD is responsive to changes in price, % change in quantity demanded will be greater than % change in price, and price elasticity of demand is greater than the absolute value of 1
unit elastic
if price elasticity is equal to 1
does more elasticity increase surplus
yes
