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Micro Economics > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Economics

A

Scarce resources with unlimited wants

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2
Q

Six principles for thinking like an economist

A
  1. Scarcity
    - When there isn’t enough for everyone to have one for free there has to be a Rationing device (price, speed, government limitation)
  2. Rational, Self-Interest
    - This is the reason why people do things or the way that they develop decisions
    - People will weigh out the cost vs. benefit
    - Incentives matter and can encourage a person to choose one thing over another
  3. Marginal Analysis
    - Marginal means additional
    - Additional benefits vs. additional costs
  4. Unintended effects
  5. Opportunity Cost
  6. Scientific Method
    - Look at all Variables
    - Make Assumption
    - Create a Hypothesis
    - Gather and look at data
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3
Q

Potential Pitfalls

A
  1. Other things constant
    - Be careful of others things that could effect study
  2. Fallacy of composition
    - The mistaken belief that what’s good for the individual is good for the whole group
  3. Association vs. causation
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4
Q

Production Possibilities Frontier Assumptions

A
  • Focus on Product of two goods: Shirts and ice cream
  • Focus on given period of time: one year
  • Resources are fixed
  • Technology is fixed
  • Rules of the game are fixed
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5
Q

Production possibility

A

The maximum amount of product you can produce

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6
Q

Production Possibilities Frontier (PPF)

A

Shows all of the different possibilities of products that can be produced at any given time

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7
Q

PPF and Scarcity

A

Points outside PPF are unattainable

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8
Q

PPF and Efficiency

A
  1. Productive efficiency
    - It is impossible for you to increase the amount of production of one product without decreasing the production of another
    - Points on the PPF line
  2. Allocative efficiency
    - The best point on the graph that gives you what you want
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9
Q

PPF and Opportunity Cost

A

Negative slope

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10
Q

PPF and Law of Increasing Opp. Cost

A
  1. Every time that you give up making more of a product, and when doing this you increase the opp. Cost
  2. The sloped graph gives me this effect
  3. Resources aren’t perfectly substitutable
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11
Q

PPF and Economic Growth

A

o Increase in Technology
o Increase in Resources
o Increase in Rules
o Show growth by PPF shifts

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12
Q

Absolute advantage

A
  • The ability to produce more of a good with the same amount of resources
  • Task specific
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13
Q

Comparative advantage

A

The ability to produce at a LOWER Opportunity Cost

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14
Q

Three concepts of I Pencil

A
  1. No one [person] knows (how to make it)
  2. Those that make me do not do so because they want me
  3. No master mind (coordinates my production)
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15
Q

Advantages Phrase

A

By specializing and trading they each got to consume more than they could on their own

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16
Q

Three Fundamental Economic Questions

A 
What to Produce?
How to Produce?
For whom is it produced?
Pure Capitalism - Markets Determine It
Command Economy - Central Planning
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17
Q

Households

A
  1. Demand - goods and services

2. Supply - Resources

18
Q

Firms

A
  1. Demand - Resources

2. Supply - goods and services

19
Q

Roles of Government

A

1) Public Good
2) Promote Competition
3) Establish Rules
4) Regulate Natural Monopolies
5) Deal with Externalities
6) Redistribute Income
7) Economy Stability

20
Q

Demand

A
  • Changes in QUANTITY demanded
  • Function typically has a downward slope
  • Dealing with price and quantity
21
Q

Law of Demand

A
  1. As price goes up, Quantity goes down OTC

2. As price goes down, Quantity goes up

22
Q

Reasons for Law of Demand

A

1) Substitution effect
- When the price of a good goes up other goods seem better and so the Q. demanded for the first good drops
2) Income effect
- As price goes up your real purchasing power goes down and Q. goes down
3) Law of Diminishing Marginal Utility

23
Q

Change in Demand

A

Shifts of Demand

  1. Tastes/Preferences goes up and demand goes up
  2. Prices of Other Goods
    a. Compliment: P goes up D goes down
    b. Substitute: P goes up D goes up
  3. Consumer Income
    a. Income increases demand increases - Normal Goods
    b. Income increases demand decreases - Inferior Goods
  4. Number of Consumers
    a. Number of consumers increase demand increases
  5. Consumer expectations
    a. You expect it not to be available so you increase your consumption
24
Q

Law of Supply

A
  • P increase - Q increase
  • P decrease - Q decrease
    Higher prices are necessary for attracting scarce resources
25
Q

Changes in Supply

A

Shifts of Supply

1) # of producers increases supply increases
2) Technology increases supply increases
3) Prices of resources increases supply increases
4) Product expectations
5) Prices of alternate goods to produce
6) Taxes/subsidies on goods
7) Regulations

26
Q

Problem of scarcity of resources

A

There aren’t enough resources to satisfy people’s unlimited wants

27
Q

In economics, how is Capital defined

A

Human creations used in the production process

28
Q

The assumption that individuals act Rationally implies…

A

People implicitly calculate the costs and benefits of an activity to decide if it is worthwhile

29
Q

When economic choice involves an adjustment to an existing situation, Marginal Analysis…

A

Involves comparing the additional cost and additional benefits of an activity before deciding

30
Q

Association-is-Causation Fallacy

A

The incorrect idea that if two variables are associated in time, one must necessarily cause the other

31
Q

Opportunity Cost

A

The value of the best alternative forgone when an item or activity is chosen

32
Q

Is it Possible for a person to have a Comparative Advantage in the production of all products?

A

Nope

33
Q

Households act as Suppliers when they provide what

A

Resources to firms and governments

34
Q

Largest source of incomes for US households

A

Wages and Salaries

35
Q

What is the most common form of business entity

A

Sole Proprietorship

36
Q

List the three types of firms in terms of volume of sales

A

Sole Proprietorship - Partnership - Corporations

37
Q

Public Goods

A

Available to all regardless of who pays for it

38
Q

Since 1930, US Gov. Spending as a percent of GDP has done what

A

Increased

39
Q

What mansion is the setting for GREED film

A

Vanderbilt house

40
Q

Recently it has been discovered that lobsters grown on lobster farms can feed on algae, which is a cheaper food. As a result of this discovery…

A

The supply curve for lobster will shift to the right

Micro Economics (3 decks)

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