MODULE 1 Flashcards
It is the mother of economics
SCARCITY
- True or False: Economics will not exist if the resources are infinite
TRUE
- Deals with the efficient allocation of resources to satisfy unlimited human wants and needs.
ECONOMICS
- True or false: People make trade-offs because they can’t have everything.
TRUE
- A trade-off that implies that if a society produce more cars, it must produce fewer of another goods/ services
WHICH GOODS TO PRODUCE
- A trade-off that implies that a firm must use more of one input if it uses less of another input. Example: Cookies and Cracker manufacturing changes cooking oil (palm oil or coconut oil depending on which is cheaper)
HOW TO PRODUCE
- A trade off that implies that the more you get goods/services, someone else will get fewer/lesser
FOR WHOM TO PRODUCE/ WHO GETS THE GOODS/SERVICES
- It is where interactions of consumers, firms, and government happen/occur. Also, price-determinant
MARKET
- It is used by the economists to explain how firm allocates their resources and how market price is determined. It is also used to describe the relationship b/w two or more economic variables, and also to predict the change of one variable to another.
ECONOMIC MODEL
- Give the 6 economic models assumptions.
- Simplify things.
- Empirically tested predictions
- Involves maximizing something relative to resource constraints
- Used to make positive economics
- Truth of positive economics can be tested
- Normative economics contains a value judgement that can be tested
- It seeks how resources are in fact allocated in an economy. It only indicates that we can test the truth about the statement. “what will happen”
Positive economics
It is a use of economic theory that tells about what should be done. It is concerns what somebody believes should happen.
Normative economics
- Give the 3 microeconomic models uses.
Predict individual, firm, and government decisions
- What is the slope of “Law of Demand”?
downward sloping
- Factors that affect Qd
own price, consumers taste/preference, price of substitute and complements, income, information, government, etc
What happen when the price of the goods change?
movement along the demand curve
A change in income, tastes, or another factor that affects demand other than price causes___?
Shifting of the demand curve
How to get total demand?
Total demand = demand 1 + demand 2 + …. Demand N
What is the slope of supply?
Upward sloping – indicates that higher price means increase in supply
. It is the intersection of the demand and supply curve.
Market equilibrium
When to Use the Supply-and-Demand Model.
applicable only in markets with many buyers and sellers; identical goods; certainty and full information about price, quantity, quality, incomes, costs, and other market characteristics; and low transaction costs. AKA PERFECT COMPETITION
Sensitivities of the consumers to the change of a price.
Price Elasticity
Give the elasticity table:
E = 0 Perfectly inelastic E < 1 Inelastic E = 1 Unit Elastic E > 1 Elastic E = ∞ Perfectly elastic Note: Elasticity of demand is negative implying a inverse relationship of demand and price. To get the elasticity, get the absolute value first.
Give the other types of Demand Elasticity
Cross-price elasticity =% price change of good B to good A
Income Elasticity = %change of income relative to good A
What is the demand elasticity where consumer can substitute goods more readily in the long run?
Long run demand curves are more elastic than short run demand curves. if goods can be stored easily, short-run demand curves are more elastic than long-run curves.
. It is the percentage change in the quantity supplied in response to a given percentage change in price.
Price elasticity of supply
What happen if the firm can increase output in the long run than in the short run?
the long run elasticity of supply is greater than the short-run elasticity.
Type of tax that government collects as fixed percent of the price per unit. “Lump sum tax”
Ad valorem tax.
Type of tax by w/c the government collects a fixed amount per UNIT SOLD.
Specific tax or Per unit tax
True or false: In an unregulated market, higher rents increase quantity supplied.
True. This is because if there is no government intervention, higher rents will encourage firms to build more houses.
True or false: Buyer always pays a larger fraction of sales tax than sellers
False. Especially if the goods were elastic, imposing higher tax percentage to consumers will discourage the to buy it. Examples are car, if the tax are imposed solely on the consumer, consumers tend to not buy the product and seek alternatives.
It means that quantity demanded will increase to infinity when the price decreases, and quantity demanded will decrease to zero when price increases.
Perfectly elastic demand
The more elastic demand is for a product, the larger is the fraction of a sales tax paid by consumers
False
