Extra Notes

Question 1

Water Diamond Paradox

Answer 1

The paradox lies in the fact that something with great utility (water) can have a low price, while something with little intrinsic utility (diamonds) can have a high price.

The resolution to this paradox lies in the economic concept of marginal utility and the law of diminishing returns:

Question 2

Marginal Utility

Answer 2

Marginal utility is the change in total utility that comes from consuming one additional unit of a product or service.

Diminishing Marginal Utility: A key principle associated with marginal utility is the law of diminishing marginal utility. This law states that, as a person consumes more units of a good, the additional satisfaction gained from each successive unit tends to decrease.

Question 3

Do viruses discriminate?

Answer 3

yes

Question 4

Positive statements

Answer 4

can be classified as either true or false

Question 5

In our analysis should we avoid positive or normative statements

Answer 5

normative

Question 6

Normative statements

Answer 6

express value judgments about what ought to be

Question 7

Effective arguments should have or can have

Answer 7

normative positions supported by positive analysis

Question 8

Theory of economics

Answer 8

is a method rather than doctrine
it is a technique of thinking

Question 9

Can theory be a substitute for data?

Answer 9

yes it is able to provide structure

Question 10

Theory and introspection

Answer 10

theory is an antidote to introspection

Question 11

Price is a

Answer 11

ration of 2 goods/services exchanged

Question 12

What is the origin of the economic problem?

Answer 12

Resources are scarce

Question 13

Scarcity is

Answer 13

Inevitable so therefore competition is inevitable

Question 13

What helps mitigate the costs of scarcity?

Answer 13

competitive actions

Question 14

Consumer vs. Producer Theory

Answer 14

consumer - demand/quantities demanded

producer - supply/quantities supplied

Question 15

Quantity Supplied

Answer 15

The supply curve is upward sloping, indicating that as the price increases, the quantity supplied also increases. This reflects the principle that higher prices incentivize producers to supply more of a good, while lower prices lead to a decrease in the quantity supplied.

Question 16

Consumer Theory

Answer 16

assumptions have to be made since you cannot measure tastes or preferences

Question 17

4 behavioral postulates

Answer 17

1. People have preferences
2. People prefer more to less
3. People are willing to substitute
4. Marginal values are decreasing

Question 18

Intrinsic Value

Answer 18

So, intrinsic value is about what something is really worth based on its actual qualities, not just what the market says it’s worth at any given moment.

ex) value of books and their themes TKAMB

Question 19

Models are built to

Answer 19

predict behavior

Question 20

Total value

Answer 20

the maximum amount of money one would be willing to spend

Ex) the highest price you would pay for a full tank of gas

Question 21

Marginal Value

Answer 21

max amount of money one is willing to spend in order to acquire one more unit of that good

Ex) the highest price you would pay for one gallon of gas

Question 22

MV of a good or service

Answer 22

decreases as more of that good or service is consumed

Q goes up … MV decreases

Question 23

General Rule for MV

Answer 23

rational consumers will keep purchasing additional units until the marginal value has fallen to the price

Question 24

MV > P

Answer 24

purchased too few

Question 25

MV < P

Answer 25

purchased too many

Question 26

Theory has the ability to be

Answer 26

prescriptive or descriptive

Question 27

Marginal Value is the

Answer 27

Demand Curve

Question 28

inelastic

Answer 28

less sensitive to changes in prive -1 < e <= 0

Question 29

elastic

Answer 29

more sensitive to changes in price e < -1

Question 30

When there is more alternatives or more time to adjust there will be

Answer 30

higher price sensitivity

Question 31

Examples of inelastic

Answer 31

business travel medical care coffee

Question 32

Examples of elastic

Answer 32

Honda cars leisure travel

Question 33

Linear Demand curve

Answer 33

as quantity demanded increases, elasticity increases towards zero

Question 34

A linear demand curve is

Answer 34

more elastic at higher prices and less elastic at lower prices

Question 35

normal good

Answer 35

demand increases income increases ex) political donations, fine dining, aie travel

Question 36

inferior good

Answer 36

demand decreases as income increases ex) ramen, fast food

Question 37

Substitutes

Answer 37

two goods for which the demand of one good increases as the price of the other good increases ex) ipad and surface, uber and taxis

Question 38

Complements

Answer 38

two goods for which the demand of one good decreases as the price of the other good increases ex) peanut butter and jam, wine and cheese

Question 39

Shipping the good apples out

Answer 39

The offense should run even more when it rains. * Although running still has the same 1-yard advantage (3 vs. 2 yards per play), the relative advantage increases in the rain. * Running is 25 percent more productive in dry conditions, but 50 percent more productive in wet conditions.

Question 40

Diamond Water Paradox

Answer 40

market demand prices reflect the marginal values of these goods

Question 41

Opportunity cost

Answer 41

Suppose you have $1,000 and decide to buy a laptop instead of investing that money in a stock. If the stock would have returned $100 over the next year, then the opportunity cost of buying the laptop is not just the $1,000 spent, but also the foregone $100 you could have earned from the investment.

Question 42

Change in demand vs. change in price

Answer 42

change in demand shifts demand curve change in price changes the movement along the demand curve