Exam 1 flashcards
Resources
the instruments used to produces goods and services, including both natural and other resources
What is economics
the study of the allocation of our scares resources
Capital
something that is used to produce other goods
factors of production
land, labor, natural resources, capital, and e ship
Entrepreneurship
willingness and ability to combine factors of production into productive enterprise
Natural resources
preexisting “gifts of nature” in an economy
Scarcity
a situation in which there is not enough of something to satisfy the desire for it.
how are scares resources allocated in modern economies
market, central, and mixed economies
Market economy
based on the predominance of private ownership of firms and limited government control, EX) Canada and Japan
Central economy
More government control and lower incomes ex North Korea or china
Positive economies
deals with statements of FACTS and what is
Negative
deals with what SHOULD be, and what ought
The Marginal concept
a change in a dependent variable caused by a one unit incremental increase in an independent variable
marginal cost
the change in total cost brought about by one unit increase in output (change in total cost/change in quantity)
marginal revenue
the change in total revenue brought about by a one unit increase in output (change in total revenue/ change ion quantity)
Ceteris Paribus
other things being equal, EX: gas prices should rise if oil prices rise
Opportunity cost
the value of the best forgone alternative/ opportunity of any decision, (budget/price of an item)
What will cause a shift in the PPF
FOPS: land, labor, capital, natural resources, and e ship
types of capital
Physical ( machines and tools), human(skills and knowledge), financial(stocks, bonds, and cash), social ( connections and quality), moral( ethics and morals)
What will cause movement around the PPF
changes in the allocation of time or resources devoted to producing a specific good or service, relative to other goods and services.
Comparative advantage
the ability to produce a good or service at a lower opportunity cost then other producers
Ricardian trade theory
if there are two trading partners with different opportunity costs (comparative advantage) then there exists a term of trade at which both parties are made at least well of by specializing and trading with one another
Absolute advantage
the ability to produce a good or service using fewer resources then other producers
Principle of increasing cost
to produce an increasing amount of a good a supplier must give up greater and greater amounts of another good
Demand
the amount buyers are willing and able to buy. demand does not equal want
Quantity demanded
the amount that buyers would be willing and able to buy at a specific price, over a specific period of time.
what is PIPTE
population of buyers, income of buyers, prices of related goods, taste and preference of buyers, expectations of future prices and incomes.
Law of demand
As price of a good or service increases the quantity demanded falls
Change in demand
At any given price buyers would be willing and able to buy either more or less then initially(the whole curve would shift)
Population of buyers(P)
an increase of population means an increase in demand
Income of buyers(I)
increase in income more normal goods and services increase but inferior goods and services decrease. EX: if incomes rise the demand for steak will goo up and demand for ground chicken will go down
Price of related goods(P)
price of substitutes increase demand for original good increase, price of compliment increase then demand for original price will decrease
taste in preference of buyers(T)
if taste in preference for a good or service increases then demand will increase because buyers will want the good or service more
Expectation of future prices or incomes (E)
if prices are expected to increase then buyers will be more able and willing to buy to the demand would increase, if incomes are expected to increase then demand for normal goods increase but demand for inferior goods decrease.
Arbitrage
the ability to buy low in one market and sell high in another
Sam bankman fried
made millions from arbitrage and was founder of FTX
Peter singer
utilitarian who came up with the theory of if a child is drowning will you go and save it even if it means you will ruin your phone or clothes? yes you would but what about the kids dying in ponds all around the world. was a found of effective altruism with will Macalister
William Macaskill
bigger advocated and protagonist for effective altruism
Subsitirity
the principle were a decision should be made more small or local setting not on as big of a scale
Supply
the amount that sellers are willing and able to sell at each of all possible prices for the product
TIPSE
Technology, input prices, prices of related goods in production, number of sellers, expected future prices
Quantity supplied
the amount that sellers would be willing and able to sell at a specific price over a specific period of time. (think of this as a point)
Law of supply
as a price of a good or service increases the quantity supply increases
Change in supply
at any given price, sellers are willing and able to sell either more or less than before(whole curve shift)
Technology(T)
if technology increase, then the efficiency of production increase, which helps supply more of a good or service, so the supply would increase
Input(I)
if input prices decrease then cost of production decrease so supply would increase.
Price of related good in production(P)
A and B are substitutes, so if B increases in demand sellers will want to make more of B which means Demand for A decrease and so does supply
Sellers (number of )(S)
increase in number of sellers means increase in supply.
Expected future prices (E)
in prices are expected in increase means supply will go down in the future
Equilibrium
a situation in which neither buyers or sellers have an incentive to change their behavior
Price ceiling
a legal maximum on the price that may be charged for commodity (you cannot charge above the price ceiling)(on the bottom half of the equilibrium)
Price floor
a legal minimum on the price that may be charged for commodity
Implications of price ceilings
there will be constant shortages, black market sales may rise
Example of price ceiling
rent control means there will be shortages of good rental units available or you can only charge $15 for medicine means there could be a shortage of the medicine
Implication of price floors
many surpluses, under the table sales will rise, disguised discounts, waste will increase, over investment in industries.
example of price floor
if you work for minimum wage
Non binding price floor or ceiling
a price floor or ceiling that falls below or above the equilibrium price level, and so has no impact on the market
Elasticity
is the %change in one economic variable in response to a 1% change in another economic variable, where the variable doing the causing is in the denominator (Ep=%change in quantity/%change in price)
Elastic demand
quantity demanded is VERY SENSITIVE to price changes, IEpI>1, graph and slope are flat
Unit elastic demand
a 1% change in price is exactly off set by 1% change in quantity demanded IEpI = 1, graph and slop are around 45 degree angle
inelastic demand
quantity demanded is NOT VERY SENSITIVE to price changes. IEpI<1. graph and slope are very stee. Ex, prices on medicine are inelastic because people need deferent medicines and are willing and able to pay more
Ep equation
Q2-Q1/P2-P1 * P1+P2/Q1+Q2
% change in quantity and %change in price equation
Q2-Q1/(Q1+Q2/2) *100
P2-P1/(P1+P2/2) *100
where in a demand curve is the it more elastic
at the top of the graph it is most elastic and bottom is inelastic
Total revenue equations
TR=P*Q
%change in TR= %change in P+%change in Q
total revenue note
if %change in TR is negative the TR has decreased and vise versa if TR is positive
What effects elasticity of demand
available substitutes, narrowness of the market(soda vs coke, there are many more sodas to choose from but there is only a few types of coke), type of good (demand for necessary items are more inelastic), Time between purchase and consumption of good, proportion of total income( if the price off salt doubles from .5 to $1 it is not that big of a deal but if a car double from 25k to 50k its a much bigger deal).
Income elasticity of demand
The responsiveness of demand for product to a 1% change in income. (Ey=%change in quantity/%change in y)(y=income) if Ey<0 then the good in inferior (Ex. if incomes rise 1% then QD of ground beef decreases) but if the Ey>0 then the good is normal(EX: if incomes rise by 1% then QD of steak increases)
Necessity goods
0<Ey<1, example of necessity goods are food, college education, cigarettes, pork, etc)
Luxury goods
Ey> 1, example are fresh fruit, travel, recreation and clothes
inferior goods
Ey<0, bread, potatoes, ground beef
Cross Price Elasticity of Demand and equation
sensitivity of QD of good (Y) to a 1% change in price of good (X), Ecp= 5change in Qy/%change in Px
the way that changes in the price of one good can affect the quantity demanded of another good.
Ecp>0
then x and Y are substitutes
Ecp=0
then x and Y are unrelated
Ecp<0
then X and Y are compliments
