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Econ 142 > Exam 1 (CH 1&2) > Flashcards

Exam 1 (CH 1&2) Flashcards

1
Q

Production Possibilities Frontier (PPF) definition

A

a diagram that shows the combinations of 2 goods that are possible for a society to produce at full employment of resources

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2
Q

PPF: All points under the curve are…

A

feasible but not efficient

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3
Q

PPF: All points above the curve are…

A

not feasible, they are impossible to create b/c not enough resources

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4
Q

Opportunity cost definition

A

What must be given up in order to obtain a good

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5
Q

Op Cost Q: To produce 20 small jets, you give up 15 dreamliners. What is the op cost of 1 small jet? What is the op cost of 1 dreamliner?

A

SJ op cost = 3/4 dreamliners

Dreamliner op cost = 4/3 SJ

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6
Q

Shortcuts for finding op cost:

A
  1. If op cost for one product is constant, then the op cost for the other product is also constant
  2. The op cost of one product is the reciprocal of the other product
  3. The op cost of the product graphed on the horizontal axis is the slope of the PPF line
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7
Q

Op cost Q: If you devote all of your time to finding clams, you can get 100/week. If you devote all of your time to finding mangos, you can get 200/ week. What is the op cost for Mangos? For Clams?

A

mangos: 1/2 clam
clams: 2 mangos

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8
Q

What does it mean for the PPF to shift right?

A

Economic growth! The economy can now produce more of everything

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9
Q

Causes of economic growth

A
  1. An increase in factors of production: resources used to produce goods and services
  2. Better technology
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10
Q

Factors of production

A
  1. Land: includes nat resources and actual land acreage
  2. Labor: the economy’s pool of workers/size of the workforce
  3. Physical Capital: includes buildings and equipment
  4. Human Capital: educational achievements and skills of the labor force
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11
Q

Theory of comparative advantage

A

produce the things you’re especially good at producing and import/buy everything else

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12
Q

Comparative advantage

A

a country has a comparative advantage in producing goods for which it has the lowest op cost

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13
Q

Absolute advantage

A

a country can produce more output than the other

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14
Q

Positive economics

A

the branch of economic analysis that describes the way the economy actually works

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15
Q

Normative economics

A

the branch of economic analysis that makes prescriptions about the way the economy should work

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16
Q

P or N: More than 60% of women are in the labor market.

A

Positive

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17
Q

Competitive market

A

has many buyers and sellers of the same good or service, none of whom can influence the price

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18
Q

Supply and Demand model

A

a model of how a competitive market behaves

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19
Q

Demand def

A

the behavior of buyers

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20
Q

Demand curve def

A

show the quantity demanded at various prices

21
Q

Quantity demanded def

A

the quantity that buyers are willing and able to purchase at given price

22
Q

What is the demand schedule?

A

it is a table (price on left; quantity on right)

23
Q

Law of demand

A

a higher price for a good or service leads people to demand a smaller quantity; this explains the downward sloping demand curve

24
Q

Change in demand is shown by

A

a leftward or rightward shift of the demand curve

25
Q

Change in quantity demanded

A

movement along the curve

26
Q

Demand Shifters

A
  1. Changes in the prices of related goods or services
  2. Changes in Income
  3. Changes in consumer tastes and preferences
  4. Changes in consumer expectations
  5. Change in # of consumers
27
Q

Changes in the prices of related goods or services

A

Substitutes: you buy one instead of the other
- Price of substitutes increase; D shift right
- Price of substitutes decrease; D shift left
Complements: have to buy together
- Price of complement increase; D shift left
- Price of complement decrease; D shift right

28
Q

Changes in Income

A 
Normal good: 
- Income increase; D shift right
- Income decrease; D shift left
Inferior good: ramen noodles
- Income increase; D shift left
- Income decrease; D shift right
29
Q

Changes in consumer tastes and preferences

A

Tastes are subject and vary among consumers; seasonal = prediction
- Demand for boots shift right during winter

30
Q

Changes in consumer expectations

A
  • Consumers expect product to be cheaper in future; D shift left
  • Consumers expect product to be more expensive in future; D shift right
31
Q

Change in # of consumers

A
  • More buyers in market; D shift right

- Less buyers in market; D shift left

32
Q

Supply def

A

represents the behavior of sellers

33
Q

Supply curve def

A

shows the quantity producers are willing and able to sell at a particular price

34
Q

Change in quantity supplied def

A

movement along the supply curve

35
Q

Supply Shifters

A
  1. Input prices
  2. Price of related goods and services
  3. Technology
  4. Change in Producer expectations
  5. Changes in the # of producers
36
Q

Input prices

A
  • Decrease price of input; S shift right

- Increase price of input; S shift left

37
Q

Price of related goods and services

A

Substitutes
- Price of one substitute increases; S for other shift left
Complements
- Price of one complement increases; S for other shifts right

38
Q

Technology

A
  • Tech improves; S shift right

- Tech deteriorates; S shift left

39
Q

Changes in Producer Expectations

A
  • Expect higher price in future; S shift left

- Expect lower price in future; S shift right

40
Q

Changes in # of Producers

A
  • # of producers decrease; S shift left

- # of producers increase; S shift right

41
Q

How to find the market supply curve?

A

fix the price and add up the quantity supplied at that price

42
Q

Market Equilibrium def

A

when quantity demanded is exactly equal to quantity supplied at a certain price, the market is in equilibrium

43
Q

Market Equilibrium (what it looks like on the graph)

A

Where the supply and demand curves cross

44
Q

If market price is > equilibrium price …

A

This is a surplus:

- the price will fall until it reaches the equilibrium price

45
Q

Surplus def

A

anytime qs exceeds the qd; occurs when the market price is above the equilibrium price

46
Q

If market price < equilibrium price …

A

This is a shortage:

- the price will rise until it reaches the equilibrium price

47
Q

Shortage def

A

occurs when the qd exceed the qs; the market price is below its equilibrium price

48
Q

What happens when the demand curve shifts?

A

D shift right: price goes up, quantity goes up, increase in quantity supplied

49
Q

What happens when the supply curve shifts?

A

S shift left; price rises, quantity falls, decrease in quantity demanded

Econ 142 (5 decks)

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