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Chem Chapters 5-7 > Microeconomics Midterm > Flashcards

Microeconomics Midterm Flashcards

1
Q

what is economics about?

A

choices

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2
Q

What is scarcity?

A
  • the reason we have choices
  • limited resources and unlimited desires
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3
Q

what is opportunity cost?

A

The cost of any choice is what we have to give up in order to get it

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4
Q

what is marginal change?

A

small adjustments overtime for a plan of action

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5
Q

what is rational?

A

people do the best they can to achieve their goals given their available opportunities

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6
Q

what is economy?

A

all the choices made by a group of people

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7
Q

What is the difference between scientist and policy advisors?

A

scientists try to explain the world and policy advisors try to improve it

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8
Q

what are the two kinds of statements?

A

positive and nominative

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9
Q

Describe a positive statement

A

Positive statements are descriptive:
-Attempt to describe the world as it is
-Can be true or false
-Good is too open ended and causes a statement to be normative
-Confirm or refute by examining evidence: “minimum wage laws cause employment”

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10
Q

describe a nominative statement

A

Normative statements are prescriptive:
-Attempt to prescribe how the world should be
example: “The government should raise the minimum wage”

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11
Q

what are incentives?

A

anything that motivates a person to want or do something

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12
Q

what is a market?

A
  • group of people who wish to buy or sell a certain good or service
  • group of buyers and sellers of a particular good or service
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13
Q

what are the market outcomes? Describe them.

A

Price
- What do you have to give up to get a good/service?
Quantity
- How much of society’s resources are available for that purpose?
Who
- Who gets to participate and who doesn’t?

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14
Q

Why do people even want to buy and trade?

A

People want more than they can produce, want more than we have

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15
Q

what is the production possibility frontier (PPF)?

A

-A graph that shows the tradeoff between producing two different goods
-Shows all of the combinations of those two goods that an individual, group, or society can possibly produce

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16
Q

what is the feasible set in the PPF?

A

The area underneath the graph line is called the feasible set because anything under is feasible

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17
Q

what is comparative advantage?

A

is the ability to produce a good at a lower opportunity cost than other producers
-example: apple computer is a huge corporation, but doesn’t make everything in the world, therefore other companies have comparative advantages

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18
Q

what is absolute advantage?

A

the ability to produce a good or service more efficiently than its competitors

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19
Q

what are buyers?

A

a group of people that determine the demand for the prosecute

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20
Q

what are sellers?

A

a group of people that determine the supply based on the demand

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21
Q

what are the outcomes we care about?

A

The price of the good
- What do you have to give up to get it?
What is the quantity produced?
- How much of society’s resources are allocated to this good?
Who gets to participate?
- Who gets left out?

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22
Q

what are perfectly competitive markets?

A
  • All goods are exactly the same
  • A market in which there are many buyers and many sellers so that the behavior of an individual buyer or seller has little impact on the market price
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23
Q

what are price takers?

A

a market participant that is not able to dictate the prices in a market

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24
Q

what is quantity demand?

A

amount buyers are willing and able to purchase

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25
what is the law of demand?
if the good is cheaper the buyer wants to buy more
26
what is market demand?
sum of an individual demands for a good or service
27
what is quantity supplied?
amount of goods sellers are willing and able to sell
28
what is the law of supply?
If the price is higher, more sellers are willing to make more product - example: If the price of corn is higher, more farmers are willing to plant more corn
29
what is a supply schedule?
table shows the relationship between price of good and quantity supplied
30
What is equilibrium price?
price where the quantity supplied equals the quantity demanded
31
what is equilibrium quantity?
quantity supplied and demanded at the equilibrium price
32
What is a shortage?
a shortage is when there is too much demand
33
what is a surplus?
a supply is when there is too much supply
34
when does the equilibrium move?
when the supply or demand curves shift
35
!what are demand shifters?
1. Prices of other goods 2. Income 3. Number of buyers 4. Consumer tastes
36
!what are supply shifters?
1. Price of inputs 2. Number of sellers 3. Technology
37
what is elasticity?
measures the responsiveness of the demand curve and supply curve to changes in its determinants
38
what is price elasticity of demand?
How much the quantity demanded of a good responds to a change in the price of that good
39
what is a shifter?
Anything that changes the relationship for supply and demand
40
What is a general rule for demand curves?
the flatter demand curve, the greater in price elasticity of demand
41
Value of elasticity scale:
e=0: perfectly inelastic (vertical demand curve) e<1: inelastic e=1: unit elastic e>1 elastic e=inf.: perfectly elastic (horizontal demand curve)
42
what is the midpoint method?
e^D = - (Q2 - Q1 / 2 (Q2+Q1)) / (P2 - P1/ 2 (P2 + P1))
43
what is the general rule for the supply curves?
the flatter the supply curve, the greater the price elasticity of supply
44
How do u find total revenue?
price x quantity
45
what is econometrics?
the study of using data to answer questions
46
how to find the income elasticity of demand?
e= percentage change in quantity demand / percentage change in income
47
values of e chart:
Normal goods: e^2 > 0 Necessities: 0 < e^1 < 1 Luxuries: e^1 >1 Inferior goods; e^1 < 0
48
what is a price ceiling?
is a law forbidding anyone from selling a good for more than the ceiling price examples: - rent - necessities - military loans
49
When is a price ceiling not-binding?
A price ceiling above the equilibrium price is not binding. So when the price ceiling is below the equilibrium its binding
50
what is a price floor?
a law forbidding anyone from selling a good for less than the floor price examples: - minimum wage
51
When is the price floor considered binding?
when the price floor is above the equilibrium it is considered binding
52
what is tax?
any law requiring a payment to the government as part of a transaction
53
what is the relationship between elasticity and tax?
the more elastic side of the market pays less tax
54
what is willingness to pay?
the maximum amount a buyer will pay
55
On a graph where is the consumer surplus?
consumer surplus is the area between the demand curve and the price
56
How to calculate consumer surplus
Amount the buyer is willing to pay minus the amount they actually had to pay CS = WTP - P
57
what is a marginal seller?
the seller who would leave the market if the price would any lower
58
what is a marginal buyer?
the buyer who would leave the market if the price was any higher
59
how to calculate producer surplus
PS = Price - Cost
60
how to find total surplus:
TS = CS + PS
61
what is efficiency?
an allocation of resources is efficient if it is efficiency feasible and there is no way to make someone better off without making someone worse off
62
what are two general principles of efficiency?
1. Under efficient allocation of consumption, the consumers with the highest willingness to pay consume 2. Under efficient allocation of production, producers with the lowest cost produce
63
what is the general principle of sufficient quantity?
In any efficient allocation, the quantity is such that a marginal value of the last unit consumed equals the marginal cost of the last unit produced OR allocate just enough resources so the marginal value is equal to the marginal cost OR maximize total surplus!
64
how do subsidies occur?
when the government adds to the price
65
What is the relationship between deadweight loss and supply & demand?
the greater the elasticities of supply and demand the greater the DWL tax
66
what is the relationship with DWL and the elasticity of supply
The greater Q falls below the surplus-maximizing quantity, the greater the DWL
67
what is the relationship with DWL and the elasticity of demand?
68
what is the tax principle?
The more the tax distorts decisions, the greater the deadweight loss
69
what is the average tax rate?
taxes/income
70
What is marginal rate?
is how much more you would pay if you earned (blank) more
71
what is a compliment?
products which are bought and used together - example: keyboard and computer
72
What is a subsitute?
a product or service that consumers view as almost the same or very similar - example: netflix and hulu
73

Chem Chapters 5-7 (22 decks)

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