Exam 1 Flashcards
Opportunity Cost
Actual cost + time
Decision at the Margin
Marginal/Additional/Gain – Finished amount – initial amount
Scarcity, Opportunity Cost, and Marginal Analysis
Resources are scarce – It is always necessary to make choices
All costs are opportunity costs
How much?
People usually exploit opportunities to make themselves better off.
Distribution Systems and Incentives
First-come, first-serve: People have an incentive to spend time in line
Given to those willing to pay the most: People have an incentive to earn money
Government policy assigns goods: People have an incentive to lobby the government
Inflation and Unemployment
Increase in printing money increases the economy’s demand leading to higher prices and more good. Lowering unemployment.
Higher inflation leads to lower unemployment
The circular flow model
Households earn income when firms purchase resources in resource markets
Spend money is Product Market
Earn money is Resource Market
Efficiency in the production possibilities model
Under line - Inefficient/Feasible
On line - Efficient/Feasible
Over line - Infeasible
Opportunity Cost
In term of other element
Microeconomics
how prices and quantities are determined through interaction of buyers and sellers
Macroeconomics
Factors that affect the entire economy
Positive Statement
seeks to describe the world as it is
Normative statement
offers an opinion as to the way the world should be
Bowed-out PPFs
opportunity cost in the curvature
Linear PPFs
opportunity cost in the slope
Quantity Demanded
The amount of a good that buyers are willing and able to purchase at a given price
Demand Curve
A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase
Demand Schedule
A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase
Law of Demand
The claim that the quantity demanded of a good falls when the price of that good rises
Movement Along the Demand
Actions such as price
Shift of the Demand
Change in taste, increase in consumers, change in factors that determine demand.
Disequilibrium
Surplus means the price is higher than at equilibrium
Price Elasticity of Demand
Inelastic – no close substitutes, do not change purchasing behavior, medical
Elastic – Close substitutes, can change, do change purchasing behavior, luxury
Most, Between, Least – Red bell pepper, Vegetables, Food
%Change – 100 x Change / Average
Mid Point
For Q and P 100 x (Y-X)/((Y+X)/2))
Elasticity = Q/P
< 1 in, 1 unit , >1 El
Income Elasticity
%Q/%I
> 0 Normal
< 0 Inferrior
Substitutes, complements
Substitutes, complements
Cross-Price - %Q/%P
> 1 Substitute
< 1 Compliment
Supply
Supply is typically more elastic in the long run
Consumer Surplus
Difference between what a buyer is willing to pay and what they pay
Producer Surplus
Difference between the price a seller receives and how low they are willing to go.
