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Econ 200 > Midterm 1 (Weeks 1-6) > Flashcards

Midterm 1 (Weeks 1-6) Flashcards

1
Q

economics

A

study of human choices in response to scarcity

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2
Q

scarcity

A

want exceeds limited resources

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3
Q

principles of economics

A

1) people are rational (use all available info to achieve their goals)
2)optimal decisions are made by calculating opportunity costs at the margin
3) people respond to incentives

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4
Q

opportunity costs

A

the true cost of something is the value you could have gained by doing something else

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5
Q

marginal cost/marginal benefit

A

cost/benefit associated with doing a small amount extra of some action, e.g producing one more car at a factory

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6
Q

sunk costs

A

costs already paid for, should not be considered when making next decision

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7
Q

incentives

A

positive or negative, sways behavior by changing the trade-offs

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8
Q

describe points on a PPF (production possibilities frontier)

A

a) on line = attainable and efficient
b) above line = unattainable
c) below line = attainable and inefficient

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9
Q

slope of PPF = ?

A

opportunity cost of y axis

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10
Q

invisible hand

A

global production/trade is a natural result of self-interested individuals trying to improve their lives

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11
Q

economic growth

A

ability of economy to increase production/expand PPF

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12
Q

absolute advantage

A

ability to produce more goods using same resources

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13
Q

comparative advantage

A

good can be produced there at a lower opportunity cost than anywhere else

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14
Q

specialization

A

each country has their own comparative advantage, specialization allows for trade

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15
Q

markets

A

individuals and businesses decide production and allocation

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16
Q

demand

A

the more it costs, the fewer people want it

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17
Q

four features of a competitive market

A

1) no transaction costs (no pay to compete)
2) standardized goods (doesn’t matter what you buy)
3) full info (quality, price)
4) price-taking participants (individuals cannot affect price)

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18
Q

demand vs. quantity demanded

A

overall curve vs. point on curve at specific price

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19
Q

ceteris paribus assumption

A

“all else held equal” - when variables other than price/quantity are held constant, demand decreases as price goes up

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20
Q

income effect

A

price down, purchasing power up

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21
Q

substitution effect

A

people will gravitate towards substitutes if they are cheaper

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22
Q

if ANYTHING other than price changes ____ happens

A

the entire demand curve shifts

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23
Q

if price changes ___ happens

A

shift down or up curve occurs

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24
Q

normal good

A

income up, demand up (most goods)

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25
Q

inferior good

A

income up, demand down (ramen noodles)

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26
Q

substitutes

A

goods that can be used in place of one another (big mac and whopper)

27
Q

complements

A

bought together (peanut butter and jelly)

28
Q

law of supply

A

all else held equal, price up means supply up

29
Q

input

A

used in production of good or service. if price goes up, supply goes down bc less profitable for company

30
Q

technological changes

A

increase supply as they increase productivity

31
Q

more firms in a market means…

A

more goods supplied

32
Q

excess supply (glut)

A

supply outweighs demand

33
Q

excess demand

A

more demand exists than supply of good

34
Q

market equilibrium

A

point where quantity demanded = quantity supplied

35
Q

predictions based on shifts in supply and demand

A

1) same direction shift = predict quantity change, not price
2) opposite direction shift = predict price change, not quantity

36
Q

elasticity

A

way to measure responsiveness of buyers to changes in prices

37
Q

elasticity is always _____ (number sign)

A

negative

38
Q

PED (price elasticity of demand) >1

A

good is price elastic

39
Q

PED < 1

A

good is inelastic

40
Q

PED = 1

A

good is unit elastic

41
Q

vertical demand/supply curve

A

perfectly inelastic, price up, quantity demanded stays the same (water, air)

42
Q

horizontal demand/supply curve

A

perfectly elastic, price up or down, quantity demanded goes to 0 (diamonds, gold)

43
Q

midpoint formula

A

solves for elasticity, (Q2-Q1/midpoint Q)/(P2-P1/midpoint P)

44
Q

determinants of elasticity

A

1) availability of close substitutes (more subs, more elastic demand)
2) passage of time (goods are more elastic long term)
3) luxuries vs. necessities (luxuries very elastic, necessities very inelastic)
4) definition of market (widely defined market = more inelastic)
5) share of good in budget (good is low cost to consumer, price is mostly indifferent)

45
Q

revenue

A

price x quantity sold

46
Q

when quantity effect > price effect

A

demand is elastic (PED>1)

47
Q

when price effect > quantity effect

A

demand inelastic

48
Q

where is revenue highest?

A

where elasticity = 1

49
Q

price elasticity of supply (PES)

A

measures producers response in quantity to a change in price, also determined by midpoint formula

50
Q

PES is always ____ (number sign)

A

positive

51
Q

cross-price elasticity of demand

A

how quantity demanded of one good changes when price of another changes. Concerns substitutes and complements, e.g if peanut butter goes up in price, what happens to quantity demanded of jelly?

52
Q

income elasticity of demand

A

quantity response to income of consumer, if elasticity >1 it is a luxury good

53
Q

efficiency

A

1) is society better off in a measureable way because of this? marginal benefit of trade outweighs marginal costs
2) market maximizes consumer and producer surpluses

54
Q

surplus

A

remains above what is used or needed

55
Q

consumer surplus

A

maximum price willing to pay for good vs. actual price of good, any discrepancy is this surplus

area BELOW demand curve, ABOVE price line

56
Q

Willingness to Pay/Willingness to Sell (WTP/WTS)

A

maximum amount consumer is willing to pay for a good/minimum amount producer will sell a good for

57
Q

producer surplus

A

any marginal benefit at or above the cost of a good

area ABOVE supply curve, UNDER price line

58
Q

total surplus

A

consumer surplus + producer surplus

59
Q

deadweight loss (DWL)

A

amount of inefficiency in a market, caused by lacks in supply or demand or price caps, etc. 0 at competitive equilibrium

calculated by area of triangle, 1/2bh

60
Q

taxes

A

supply and demand curves shift left, both surpluses decrease

government takes revenue

61
Q

subsidies

A

supply and demand curves shift right, surpluses increase

government pays

62
Q

price floor

A

legal minimum price instilled to pay for a good; creates surplus (think milk price floor for dairy farmers, govt. must buy up surplus)

63
Q

price ceiling

A

legal maximum price for a good, think rent control, gas price caps, etc. creates shortage

Econ 200 (1 decks)

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