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exam 1 Flashcards

1
Q

Economic

A

Way of thinking, study of choice

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2
Q

Cost-benefit principle

A

Suggest that action should only be taken if benefit > cost

• only do something when
Marginal benefit > marginal cost

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3
Q

Cost-benefit principle example

A

Store 1: Game cost $100
Store 2: Game cost $80

• what is the traveling cost to store 2?
• cost of traveling less or more than &20?

traveling cost = $10
10 < 20, yes ($10 profit)

traveling cost = $25
25 > 20, no ($5 cost)

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4
Q

Willingness to pay

A

Maximum amount buyer is willing to pay for something

• help convert non financial cost/benefit into money equivalent

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5
Q

Economic surplus

A

Measure how a decision improved well-being

• total benefit - total cost

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6
Q

Economic surplus example

A

Sony offer a paying job for $45000 / year
You would’ve accepted if its $ 35000 / year

Economic surplus = 45000-35000
= 10000

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7
Q

Framing effect

A

Decision affected by how a choice is presented

• clouds judgement

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8
Q

Framing effect example

A

Tee shirt
Shows original & sale price

Framing effect: makes u believe that since its on sale and cheaper, youre making profit

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9
Q

Opportunity cost principle

A

True cost of something is the most best alternative you have to give up

• every choice is a trade-off

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10
Q

Opportunity cost example

A

• you have 2 hrs of free time
You can..:
A) do hw
B) hangout
C) Netflix
D) nap

Do hw = giving up hangout (next best alternative)

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11
Q

Sacarcity

A

Resources are limited

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12
Q

Sunk cost

A

Cost that has been incurred and cannot be recovered

• ignore sunk cost

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13
Q

Sunk cost example

A

• You paid $10 for a movie, its 3 hours long
• You’ve been watching for 1 hr and its horrible
• Do you keep watching?

No, you already paid so you can’t get it back
But you can save 2 hours doing something better

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14
Q

Production possibility frontier

A

Shows different set of output that are attainable w scare resources

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15
Q

Marginal principle

A

Decision about qualities are best made incrementally

• break decision into small steps
• help maximize economic surplus

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16
Q

Marginal principle example

A

Deciding HOW MANY of something
• “how many worker should I hire?” NO
• “should i hire ONE more?” YES

• breaking “how many” into “1 more”

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17
Q

Marginal benefit

A

Extra benefit from 1 extra unit of good

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18
Q

Marginal cost

A

Extra cost from 1 extra unit

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19
Q

Rational rules

A

If something is worth doing, keep doing until marginal benefit = marginal cost

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20
Q

Interdependence principle

A

Best choice depends on
1. Your other choices
2. Choices other makes
3. Development in markets
4. Future expectation

• factor changing cause ur choice to change

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21
Q
  1. Your other choices

Interdependence principle

A

W limited resources, every choice made affect resources available for other decision

• ex: 24 hrs a day (limited time)
• amount of time available to study accounting depends on how much time is spent on studying econ

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22
Q
  1. Choices other makes

Interdependence principle

A

Choices made by other (business, people, gov) shape your choices

• your ability to date the Jack in ur class depends on the other people Jack might date in your class

• competing buyers in dating market

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23
Q
  1. Development in market

Interdependence principle

A

Change in prices & opportunity in one market affect choices you might make in other market

M

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24
Q
  1. Future expectancy

Interdependence principle

A

Present choice affect future choice

• ex: taking a class that fulfill prerequisite for future class
• shape ur future class choice

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25
Principle connections
1. Use marginal principle • break it down 2. Apply cost benefit principle • asset relevant cost & benefit • mb > mc 3. Apply opportunity cost principle • evaluate relevant cost & benefit 3. Interdependence principle • help identify how change in factor affect choice
26
Individual demand
(graph) plot the quantity of an item that a consumer plan to buy at each price • consumer
27
Graph
Price: vertical axis Quantity: horizontal axis
28
Law of demand
Price fall = quantity demand rise • downward sloping
29
Rational rule for buyers
Buy 1 more if marginal benefit > price
30
Diminishing marginal benefit
Benefit of a good declines as more is consumed by individual • ex: eating Pizza Slice 1: amazin Slice 2: good Slice 3: full Slice 4: not good
31
Market demand
Purchasing decision of all buyers as a whole
32
Market demand curve
Plot total quantity of an item demanded by all buyers at each price
33
4 step to estimate market demand
1. Survey 2. At each price add total quantity demanded by all 3. Scale up quantity demanded • to represent whole market 4. Plot quantity at each price
34
Demand curve shift
Increase demand: shift right Decrease demand: shift left
35
6 factors of demand shift
1. Income 2. Preference 3. Price of related goods 4. Expectations 5. Congestion & network effects 6. Type & number of buyers
36
normal good
good that increase in demand due to increase in income ex: branded new car 5 star hotels
37
inferior good
Good that decrease in demand because of increase in income ex: non branded old car motel
38
complementary goods
goods that goes well together - price of a good increase = decrease demand of complementary good ex: hot dog + bun Hot dog price increase Bun demands decrease (cuz hot dog is too expensive so there no need for buns)
39
substitute goods
good that replace each other because it serves the same purpose - price of good A increase —> increase demand of substitute ex: price of coke doubles pepsi demand increase coke demand decrease
40
network effect
goods becomes more useful because a lot of people use it - more people buy good, makes other want to buy the same good increasing demands
41
congestion effect
good become less valuable when more people use them - when more people began to go to your regular coffee shop, creating longer lines (congestions), you stop going
42
individual supply curve
shows quantity of an item that business plan to sell at each price - upward curving
43
Law of Supply
price increase = supplied quantity increase
44
perfect competition
market that sells identical goods ex: gasoline market all selling the same good around the same price
45
price takers
market seller that is not able to dictate the market price -have to accept the price set for the whole market cuz they can’t influence it
46
variable cost
cost that vary depending on the volume of good being produced or sells (business activity) ex: labor, material, delivery
47
fixed cost
Cost that remains the same regardless of business activity ex: mortgage, land
48
rational rules for sells in competitive market
sell 1 more unit if price >> marginal cost
49
marginal product
Additional output produced as a result of adding 1 more unit of input Ex: marginal product of labor - 2 worker = 10 donuts made Add 1 worker (1 more unit of input) = 15 donuts made Additional donuts produce as a result of hiring 1 more unit
50
diminishing marginal product
marginal product (benefit) of an input declines as you use more of it - occur when input are fixed - ex: fixed office space as you add more people it becomes crowded
51
Market supply
sum of quantity supplied by each sells
52
movement along supply curve
price rise = quantity supplied rise
53
shift in supply curve
decrease in supply = shift left increase in supply = shift right
54
5 factors of supply shift
1. input prices 2. productivity & technology 3. prices of related input 4. expectation 5. type & number of sellers
55
substitutes in production
price of one good increase, decrease supply of another Gas vs diesel (sub) Producing 1 diesel more requires producing less of gas
56
complement in productions
price of complementary good (B) rise = supply of good A increase
57
command economy
government make economic decision about what to produce, how, and by whom
58
market economy
people & business makes economic decisions
59
traditional economy
people in a rural/tribal community make their own market - no room for growth
60
market
any setting that bring together buyers (demand) & sellers (supplier)
61
equilibrium
point where there is no tendency to change
62
when is market in equilibrium?
when quantity demand = quantity supplied
63
equilibrium price
quantity demand = quantity supplied
64
equilibrium quantity
quantity demanded & supplied is at equilibrium price
65
shortage
quantity demand > quantity supplied - cause price to rise
66
surplus
quantity demand < quantity supplied
67
Disequilibrium cause
1. queuing - people waiting in line for new items 2. bundling of extras - in order to buy a ps5 you have to buy game pass 3. secondary market - allow sellers to change price - ex: play station ps5: $500 Facebook marketplace: $800
68
disequilibrium
market is not stable & certain - is likely to change
69
increase in demand (equilibrium)
shift right increase in demand = buying larger quantity at each price
70
decrease in demand (equilibrium)
shift left decrease in demand = buying smaller quantity at each price
71
demand shift factors (equilibrium)
1. income 2. preference 3. price of complements & substitutes 4. expectations 5. congestions & network effects 6. type & number of buyers
72
demand shift
price & demand moves together
73
increase in supply (equilibrium)
shift right price decrease = supply increase
74
decrease in supply (equilibrium)
price increase = quantity supplied decrease
75
supply shift
price & quantity moves opposite
76
supply shift factors
1. input prices 2. productivity n technology 3. other opportunity n price of related good 4. expectation 5.type n number of sellers

econ 201 (3 decks)

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