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econ 201 > exam 1 > Flashcards

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
Q

Principle connections

A
  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
  4. Interdependence principle
    • help identify how change in factor affect choice
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26
Q

Individual demand

A

(graph) plot the quantity of an item that a consumer plan to buy at each price

• consumer

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27
Q

Graph

A

Price: vertical axis
Quantity: horizontal axis

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28
Q

Law of demand

A

Price fall = quantity demand rise

• downward sloping

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29
Q

Rational rule for buyers

A

Buy 1 more if marginal benefit > price

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30
Q

Diminishing marginal benefit

A

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

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31
Q

Market demand

A

Purchasing decision of all buyers as a whole

32
Q

Market demand curve

A

Plot total quantity of an item demanded by all buyers at each price

33
Q

4 step to estimate market demand

A
  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
Q

Demand curve shift

A

Increase demand: shift right
Decrease demand: shift left

35
Q

6 factors of demand shift

A
  1. Income
  2. Preference
  3. Price of related goods
  4. Expectations
  5. Congestion & network effects
  6. Type & number of buyers
36
Q

normal good

A

good that increase in demand due to increase in income

ex: branded
new car
5 star hotels

37
Q

inferior good

A

Good that decrease in demand because of increase in income

ex: non branded
old car
motel

38
Q

complementary goods

A

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
Q

substitute goods

A

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
Q

network effect

A

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
Q

congestion effect

A

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
Q

individual supply curve

A

shows quantity of an item that business plan to sell at each price

  • upward curving
43
Q

Law of Supply

A

price increase = supplied quantity increase

44
Q

perfect competition

A

market that sells identical goods

ex: gasoline market
all selling the same good around the same price

45
Q

price takers

A

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
Q

variable cost

A

cost that vary depending on the volume of good being produced or sells (business activity)

ex: labor, material, delivery

47
Q

fixed cost

A

Cost that remains the same regardless of business activity
ex: mortgage, land

48
Q

rational rules for sells in competitive market

A

sell 1 more unit if price&raquo_space; marginal cost

49
Q

marginal product

A

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
Q

diminishing marginal product

A

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
Q

Market supply

A

sum of quantity supplied by each sells

52
Q

movement along supply curve

A

price rise = quantity supplied rise

53
Q

shift in supply curve

A

decrease in supply = shift left
increase in supply = shift right

54
Q

5 factors of supply shift

A
  1. input prices
  2. productivity & technology
  3. prices of related input
  4. expectation
  5. type & number of sellers
55
Q

substitutes in production

A

price of one good increase, decrease supply of another

Gas vs diesel (sub)
Producing 1 diesel more requires producing less of gas

56
Q

complement in productions

A

price of complementary good (B) rise = supply of good A increase

57
Q

command economy

A

government make economic decision about what to produce, how, and by whom

58
Q

market economy

A

people & business makes economic decisions

59
Q

traditional economy

A

people in a rural/tribal community make their own market
- no room for growth

60
Q

market

A

any setting that bring together buyers (demand) & sellers (supplier)

61
Q

equilibrium

A

point where there is no tendency to change

62
Q

when is market in equilibrium?

A

when quantity demand = quantity supplied

63
Q

equilibrium price

A

quantity demand = quantity supplied

64
Q

equilibrium quantity

A

quantity demanded & supplied is at equilibrium price

65
Q

shortage

A

quantity demand > quantity supplied
- cause price to rise

66
Q

surplus

A

quantity demand <
quantity supplied

67
Q

Disequilibrium cause

A
  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
Q

disequilibrium

A

market is not stable & certain
- is likely to change

69
Q

increase in demand

(equilibrium)

A

shift right
increase in demand = buying larger quantity at each price

70
Q

decrease in demand

(equilibrium)

A

shift left
decrease in demand = buying smaller quantity at each price

71
Q

demand shift factors

(equilibrium)

A
  1. income
  2. preference
  3. price of complements & substitutes
  4. expectations
  5. congestions & network effects
  6. type & number of buyers
72
Q

demand shift

A

price & demand moves together

73
Q

increase in supply

(equilibrium)

A

shift right
price decrease = supply increase

74
Q

decrease in supply

(equilibrium)

A

price increase = quantity supplied decrease

75
Q

supply shift

A

price & quantity moves opposite

76
Q

supply shift factors

A
  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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