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ECN 203 > Midterm Review > Flashcards

Midterm Review Flashcards

1
Q

Economics

A

The study of how to best allocate scarce resources & help find our optimal allocation

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2
Q

Microeconomics

A

The study of decision making at the individual level

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3
Q

Macroeconomics

A

The study of overall performance of an economy

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4
Q

Fundamental Concept of Economics

A

Resources are scarce relative to our wants and needs (scarcity)

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5
Q

Opportunity Cost

A

The cost of pursuing a given choice

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6
Q

Ceteris Paribus

A

“other things being equal”

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7
Q

Total Utility (TU)

A

an inidividual’s total satisfaction

Sum of Marginal Utility

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8
Q

Marginal Utility (MU)

A

change in TU resulting from a change in quantity

MU=∆TU/∆Q

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9
Q

Marginal Product (MP)

A

change in output (Q) due to each additional unit of a resource
(MP=∆Q/∆N)

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10
Q

Value of the Marginal Product (V): ∆TU/∆N

With just one option and assuming no scarcity

A

Continue until reach bliss point where MU = 0

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11
Q

Value of the Marginal Product (V): ∆TU/∆N

With N options and no scarcity

A

Reach bliss point

MU1 = MU2 = ……. = MUn = 0

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12
Q

Value of the Marginal Product (V): ∆TU/∆N

With N options and scarcity

A

Continue until utilities are equal across all options (Cannot reach bliss point)
MU1 = MU2 = …………. = MUn = X (where X>0)

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13
Q

Value of the Marginal Product (V): ∆TU/∆N

With several options for using productive resources and faces scarcity

A

Value of the Marginal Products are equal across all options

V1= V2 = ……=Vn= X (where X>0)

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14
Q

What role do assumptions play in economic models?

A

Models are based on assumptions and used to make predictions

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15
Q

Absolute Advantage

A

the ability to produce more of a good than others using the same amount of resources

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16
Q

Comparative Advantage

A

the ability to produce more of a good at a lower opportunity cost than another
(Necessary for trade to be beneficial)

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17
Q

Barter

A

the exchange of goods and services for others of similar value (flawed system)

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18
Q

General Equivalent

A

one commodity that is generally accepted for all others (best method)

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19
Q

Medium of Exchange

Three Roles of Money

A

facilitates the exchange of goods and services

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20
Q

Unit of Account

Three Roles of Money

A

provides a common way to measure value of holdings

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21
Q

Store of Value

Three Roles of Money

A

holds value over time and can be used later

22
Q

Demand

A

shows the quantity (Q) of a good buyers are willing and able to purchase at various prices (P)

23
Q

Supply

A

shows the qantity (Q) of a good suppliers are willing and able to produce and sell at various prices (P)

24
Q

Excess Supply

A

Market Price is too HIGH (Qs > Qd)

Price adjusts downward until it reaches equilibrium

25
Q

Price Elasticity of Demand

A

Measures the responsiveness of QD to a change in P

26
Q

Determinants of Inelastic Demand

A
  • Necessity
  • Number of Substitutes
  • Broadly Defined Market
  • Small Change Relative to Income
  • Short Run
27
Q

Determinants of Elastic Demand

A
  • Luxury
  • Quality of Substitutes
  • Narrowly Defined Market
  • Large Change Relative to Income
  • Long Run
28
Q

Excise Tax on a Good: Elastic Demand

A

Sellers bear the tax burden

29
Q

Excise Tax on a Good: Inelastic Demand

A

Buyers bear the tax burden

30
Q

Cross-price elasticity

ε1x2

A

Measures the effect of a price change of one good on the demand for another good

31
Q

Income elasticity

εI

A

Measures the effect of an income change on the demand for a good

32
Q

Shift Variables of Demand

A
  1. Taste/Preference
  2. Price of Related Goods
  3. Consumer Income
    (Number of buyers only shifts the market demand)
33
Q

Shift Variables of Supply

A
  1. Price of inputs into production
  2. Level of technology
  3. Environment of production
    (Number of firms only shifts the market supply)
34
Q

Characteristics of Competitive Markets

A
  • Large number of buyers and sellers
  • Same quality good across sellers
  • Free entry into or exit out of industry
  • Perfect information across firms
35
Q

Complements

A

Demand decreases as price for other good increases. Negative

ε1x2

36
Q

Substitutes

A

Demand increases as price for other good increases

ε1x2 > 0 (Positive Sign)

37
Q

Normal Goods

A

Necessary; Demand increases as income increases

εI > 0 (Positive Sign)

38
Q

Inferior Goods

A

Luxury; Demand decreases as income increases. Negative

εI

39
Q

Risk

A

events that may affect one’s decision

40
Q

Discount Rate

A

measures one’s willingness to wait for future utility

41
Q

Present Value

A

value of future utility put into today’s value

42
Q

Uncertainties

A

might affect our plans but we do not see them coming

43
Q

Positive Extranalities

A

positive effect on bystander (flu shot)

Government Solution: subsidize firms

44
Q

Negative Extranalities

A

negative effect on bystander (smoking)

Government Solution: tax firms

45
Q

“internalize the externality”

A

implement change so that Lp = Ls again

46
Q

Shift Variables of Labor Demand

A

Wage
Price of Good (P)
Price of Other Inputs

47
Q

Shift Variables of Labor Supply

A 
Wage
Wealth
Preferences/Attitudes of Workers
Other Opportunities 
# of Workers
48
Q

Why is labor supply upward sloping?

A

Opportunity cost of work is the value of leisure (increasing opportunity cost with hours worked)

49
Q

Why is labor demand downward sloping?

A

Due to diminishing value of marginal product.

As a result, a firm will hire additional units of labor as wage decreases.

50
Q

Labor Demand

A

the amount of labor that firms are willing to hire

51
Q

Labor Supply

A

the quantity of labor that workers are willing/able to provide

ECN 203 (3 decks)

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