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Econ 202 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

What is Economics?

A

“Trying to satisfy unlimited wants with limited means.”

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2
Q

Define Scarcity

A

We cannot get everything we want. To get something we must give up something else.

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3
Q

Economics is a _, it makes efforts to _

A

social science; measure and quantify

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4
Q

Define Microeconomics

A

Studies choices made by individuals and businesses

Ex. How a business is affected by the unemployment rate or what choices an individual decides to make with their money during a recession

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5
Q

Define Macroeconomics

A

Studies the performance of the national and global economies

Ex. GDP and benefits of trade

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6
Q

Positive statements…

A

…objectively describe how things are

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7
Q

Normative statements…

A

…judge what should be.

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8
Q

_ are produced to satisfy human wants and needs.

A

Goods and Services

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9
Q

Production technology

A

is used to combine factors of production using them as inputs to obtain goods and services as outputs

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10
Q

Define Capital:

A

tools, machines, buildings — used in production

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11
Q

Define Labor:

A

time and effort devoted to work
(human capital makes labor more skilled)

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12
Q

Define Land

A

“gifts of nature”

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13
Q

Define Human Capital:

A

makes workers more skilled and productive (formal education, job training, experience, and health are part of human capital)

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14
Q

Define Entrepreneurship:

A

find business opportunities, organize factors

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15
Q

What is a Pareto’s definition of efficiency?

A

“A situation is efficient if it is impossible to make a person better off without making at least one other person worse off.”

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16
Q

A Pareto improvement is defined as…

A

A change that benefits at least someone and hurts no one. If a Pareto improvement is possible, the situation will be inefficient. But this situation can still be seen as unequal (give a child one candy and another child two candies)

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17
Q

Economic Justice

A

Is the distribution of income equitable? *These ideas differ in society

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18
Q

Market Efficiency occurs when… (2 things)

A
  1. Firms have incentives to supply high-quality, competitively-priced goods
  2. Prices steer consumers to satisfy their wants buying cheap (abundant) rather than expensive (scarce) goods
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19
Q

Market Efficiency fails when… (2 things)

A
  1. Monopolies
  2. Externalities such as environmental pollution which create costs for society which aren’t often paid by the pollutor
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20
Q

How do you measure Inequality?

A

With the Lorenz curve and the Gini Index

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21
Q

Production Possibilities Frontier is…

A

the boundary between those combinations of goods and services that can be produced and those that cannot due to a lack of resources.

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22
Q

Production Possibilities assumes

A

That everything else remains constant as two goods change

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23
Q

What creates optimal production?

A

Marginal cost=Marginal benefit –> Optimal production

24
Q
  1. Points on the line mean..
  2. Points under the curve mean..
  3. Points above the curve mean..
A
  1. Attainable and Efficient
  2. Attainable but Inefficient
  3. Unattainable
25
Q

Principle of decreasing marginal utility

A

The marginal benefit of an extra pizza decreases as the amount consumed increases

26
Q

What are some reasons for trade? (3)

A

1.PPF is different depending on the country because of differing resources and technologies
2. If the opportunity costs are different between 2 countries an improving trade is possible
3. Comparative advantage: lower opportunity costs

27
Q

What does the Ricardian Model say?

A

Specialization and trade can leverage comparative advantage to produce more efficiently. In the model its a win-win, but the model doesn’t account for other factors such as unemployment and geopolitical rivals.

28
Q

Consumer’s problem:

A

choosing what to buy to best satisfy those wants within budget

29
Q

Consumer demand:

A

which tells us what the consumer will buy given income, prices, and any other relevant factor. The solution to the Consumer’s problem

30
Q

Law of Demand:

A

Other things equal, the higher the price of a good, the smaller the quantity demanded. This also means that demand is downward sloping

31
Q

Substitution effect:

A

When the relative price (opportunity cost) of a good rises, people seek substitutes for it, so the quantity demanded falls

32
Q

Income effect:

A

When the price of a good rises, the purchasing power of money goes down, so the consumer cannot afford the same quantities as before

33
Q

What are the exceptions to the law of demand?

A
  1. Giffen Goods
  2. Conspicuous consumption
  3. Positioning in marketing
  4. Momentum in finance
34
Q

Giffen Goods

A

In a severe famine, the prices of potatoes rose but poor households bought more potatoes because they stopped buying other foods like meat or milk. Its a story of income effects and inferior goods.

35
Q

Conspicuous consumption:

A

Buy expensive things to display wealth

36
Q

Positioning in marketing:

A

A high price may be seen as by consumers as a sign of quality

37
Q

Momentum in Finance:

A

Buying stocks that have gone up recently

38
Q

Demand refers to…

A

the entire relationship between the price of the good and quantity demanded of the good

39
Q

demand schedule

A

the relationship between the quantity demanded of a good and its price when all other influences on a consumers planned purchases remain the same

40
Q

demand curve

A

shows the graphical representation of the demand schedule and is downward slopind

41
Q

When is there a change in demand?

A

When a relevant factor other than the price of the good changes

42
Q

Factors that shift the demand curve

A
  1. Price of related goods
  2. Expected future prices
  3. Income gains increase demand for normal goods and decrease demand for inferior goods
  4. Expected future income and credits: similar role as current income
  5. Population: More people, more demand
  6. Preferences
43
Q

Supply

A

Given a price sellers will be interested in selling a given quantity of a good or service

44
Q

A firm that supplies a good or service:

A
  1. Has the resources and the technology to produce it
  2. Can profit from producing it
  3. Has a definite plan to produce and sell it
45
Q

Law of Suppply:

A

With other things equal, the higher the price of a good, the greater the quantity supplied, meaning that supply is upward sloping

46
Q

What is the guideline between Marginal cost and supply?

A

Produces will supply a good only if they can cover the marginal cost of production. Marginal cost tends to increase as the quantity produced increases

47
Q

Supply refers to…

A

the entire relationship between the price of the good and the quantity supplied of the good

48
Q

supply schedule shows

A

the relationship between the price of the quantity supplied of a good and its price when all other influences on the consumers planned purchases remain the same

49
Q

supply curve shows

A

the graphical representation of the supply schedule (upward sloping)

50
Q

Factors that shift the supply curve

A
  1. Prices of factors of production: higher costs, higher prices
  2. Prices of related goods products. Supply decreases (or increases) following a rise in the price of a substitute (or complement) in production
  3. Expected future prices. A higher expected price tomorrow reduces supply today
  4. Number of suppliers. Entry of producers in a merket increases supply
  5. Technological Advances increase supply by lowering marginal costs
51
Q

Market Equilibrium

A

Equilibrium is a situation in which opposing forces balance each other. A market is in equilibrium when the price balances the plans of buyers and sellers

52
Q

Equilibrium price:

A

the price at which the quantity demanded equals the quantity supplied

53
Q

Equilibrium quantity:

A

the quantity bought and sold at the equilibrium price

54
Q

What happens with prices under the equilibrium price?

A

there is excess demand i.e. a shortage, prices rise

55
Q

What happens with prices over the equilibrium price?

A

there is excess supply ie a surplus, prices fall

Econ 202 (1 decks)

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