micro 208 - mid-term Flashcards
Economics
= the study of the use of scarce resources to satisfy “unlimited” human wants (goods and services)
Resources / factors of production
land, labour, capital
Opportunity cost
= the value of the next best alternative that is forgone when one alternative is chosen
Diff types of economies
market, planned, traditional, command, free-market, mixed
planned economy
Economic activities are conducted according to plans by the gov
Market economy
- Private ownership of resources is predominant
- Economic decisions are made in a decentralized manner
- Prices and quantities are determined by supply and demand on the markets.
Marginal decisions
producer weighs marginal cost of a worker (extra labor that must be paid) against marginal benefit of worker (increase in sale revenues)
positive statements
- are statements about matters of fact.
- A positive statement is about what actually is, was, or will be.
Ex: if this, then that
normative statements
depend on value judgements and cannot be evaluated solely by a recourse to facts.
cross-sectional data
observations of many different individuals (subjects, objects) at a given time, each observation belonging to a different individual
Time-series data
evolves over time
Panel data
longitudinal data where observations are for the same subjects each time
variables are positively related
When two variables move in the same direction
variables are negatively related
When two variables move in opposite directions
variables are linearly related to each other
If the graphs of these relationships are straight lines
Quantity Demanded vs demand
Demand is the relationship between desired purchases and all the possible prices of the product
= not just the particular quantity demanded at a moment
Quantity demanded refers to a flow of purchases expressed in a period of time → ex: 20 units per day
quantity demanded
the total amount of any particular good or service that consumers want to purchase during some time period
stock
a quantity that is measured at a specific point in time or over a specific period
Flow
a quantity that is measured over a period of time
Increase in demand
curve shifts right
Decrease in demand
curve shifts left
Normal goods
goods for which the quantity demanded increases when average income rises
Inferior goods
goods for which quantity demanded falls when income rises → ex: fewer rides on public transit as income rises
Substitues in consumption
goods that can be used in place of another good to satisfy similar needs or desire
Complements in consumption
goods that tend to be consumed together
Movements along the demand curve
changes in the quantity demanded of a good or service in response to changes in its price while keeping all other factors constant
Shifts of the demand curve
changes in the overall demand for a good or service due to factors other than the price
Change in Demand vs. Change in Quantity Demanded
Change in demand = shift of the entire demand curve, which can be caused by various factors such as changes in consumer preferences, incomes, or population
Change in quantity demanded = movement from one point to another along the demand curve, typically caused by changes in price
Quantity supplied
amount of a good or service that producers are willing to sell in a specific time period
a market
any situation where buyers and sellers negotiate the exchange of goods or services, whether in physical places, online platforms, or other mediums
Market equilibrium
Occurs when the quantity demanded equals the quantity supplied, resulting in no shortage or surplus
Equilibrium price
price at which this equality is achieved
absolute price
amount of money that must be spent to acquire one unit of a commodity
relative price
its cost in terms of another good or service, rather than in terms of money
how much of one good must be given up to obtain one unit of another good.
Example: If a book costs $20 and a pen costs $5, the relative price of the book in terms of pens is 4 pens (because $20 ÷ $5 = 4). Conversely, the relative price of a pen in terms of books is 0.25 books.
elastic demand
quantity demanded is highly responsive to changes in price. This means that consumers are sensitive to price changes, and even a small change in price can lead to a significant change in the quantity demanded.
inelastic demand
quantity demanded is relatively unresponsive to changes in price
calculation of price elasticity of demand
= percentage change in quantity demanded / percentage change in price
short-run demand curve
immediate response of quantity demanded to a price change
long-run demand curve
response of quantity demanded after sufficient time has passed for consumers to develop or switch to substitute products
total expenditure
the amount consumers spend on a product
total expenditure calculation
price * quantity
price elasticity of supply
measures the responsiveness of the quantity supplied to a change in the product’s price
calculation of price elasticity of supply
= percentage change in quantity supplied / percentage change in price
supply curves typically have positive slopes
as the price increases, the quantity supplied also increases.
calculation of supply elasticity
consider the change in quantity supplied and price between two points on a supply curve. Divide the percentage change in quantity supplied by the percentage change in price
elasticity classification
–> When hS > 1, supply is said to be elastic, meaning that the quantity supplied is highly responsive to changes in price.
–> When hS < 1, supply is said to be inelastic, indicating that the quantity supplied is not very responsive to price changes.
zero elasticity
If the supply curve is vertical, meaning that the quantity supplied remains constant as price changes, the elasticity of supply is zero.
Infinite Elasticity
A horizontal supply curve has an infinite elasticity of supply. A slight decrease in price leads to a reduction in the quantity supplied from an indefinitely large amount to zero.
ease of substitution
depends on how easily producers can shift their resources and production processes in response to changes in prices
excise tax
tax imposed on specific goods or services
income elasticity of demand
measures the responsiveness of demand to changes in income
calculation of income elasticity of demand
= percentage change in quantity demanded / percentage change in income
cross elasticity of demand
measures how the quantity demanded of one product responds to changes in the price of another product
calculation of cross elasticity of demand
= percentage change in quantity demanded of good X / percentage change in price of good Y
price floor
the minimum permissible price that can be charged for a particular good or service
Price ceilings
maximum price at which certain goods and services may be legally exchanged
black market
any market in which transactions take place at prices that violate a legal price control
economic surplus
the dif between the value to consumers and the additional costs to firms
output quotas
limit set by governing body or regulatory authority on the quantity of a particular product that can be produced or supplied in a specific period
total utility
consumer’s total satisfaction resulting from the consumption of a given product
marginal utility
additional satisfaction obtained from consuming one additional unit of a product
central hypothesis of utility theory
the utility that any consumer derives from successive units of a particular product consumed over some period of time diminishes as total consumption of the product increases (holding constant the consumption of all other products).
real income
income expressed in terms of the purchasing power of money income
substitution effect
when purchasing power is held constant, the change in the quantity demanded of a product whose relative price has changed is called the substitution effect of the price change
income effect
the change in the quantity of a product demanded resulting from a change in real income (holding relative prices constant)
Giffen goods
an inferior good for which the income effect outweighs the substitution effect so that the demand curve is positively sloped
consumer surplus
the difference between the total value that consumers place on all the units consumed of some product and the payment they actually make to purchase the amount of the product
