final economics notes midterm 1

Question 1

Productive efficiency

Answer 1

Maximum production at lowest cost

Question 2

Allocative Efficiency

Answer 2

Best point along PPF; Production exactly according to consumer preferences, and Marginal Benefit=Marginal Cost

Question 3

Positive Analysis
Normative Analysis

Answer 3

World as it is!
Proven Disproven

World as it aught to be
Value judgements cant be proven disproven

Question 4

Comparative Advantage
Absolute Advantage

Answer 4

Lowers opportunity cost
More productivity

Question 5

Supply what happens to lowest cost as quantity produced goes up?

Answer 5

As quantity produced goes up, lowest cost also goes up!

Question 6

Calculating Market Demand/Supply

Answer 6

1. Pick a Price Point that is shared between both Consumer A and B
2. Add quantities of A and B into a new column
3. Chart then new y values!

Question 7

How do governments increase efficiency?

Answer 7

1. They protect property rights
2. They protect against market failures
   -Externalities
   -Limit Market Power

Question 8

The role of Substitutes and Complements:

Demand: If Sub price goes UP…
If Comp price goes UP

Supply: If Sub in production price goes UP…
If Comp in production price goes up…

Answer 8

Demand:
Sub Price goes up=Demand of other good goes up!!!!
(buy cheaper)

Comp Price goes UP=Demand goes down
(cant buy this good bc its comp is so expensive)

Supply:
Sub in production Price goes up=Supply of other goes down!!
(producers wanna do waht makes money!)

Comp in production Price goes up=Supply of good goes up
(if chicken meat makes money then eggs do too)

Question 9

If the curves move differently?

Answer 9

Quantity is unknown

Question 10

If the curves move together

Answer 10

Price is unknown

Question 11

How to calculate Trade happening

Answer 11

1. Get the comparative advantage ratio chart
2. Calculate who has comp adv in what
3. KNOW: you want to trade cheaper then opp cost, so pick Good X to trade, and put it in between the opp cost of Goods Z1 and Z2

Z1<Good X<Z2

4. Pick a value that fits Good X
5. Comp adv knowledge: specialize in a good, so let one trader specialize and choose a value to give away
6. Multiply this value by the value of Good X, the value Trader gives away is waht they give away and the product is what they recieve for the tradeoff
7. chart and check