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ECON 102 > summary > Flashcards

summary Flashcards

1
Q

scarcity principle

A

having more of one thing means having less of another

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2
Q

cost-benefit principle

A

an individual should take action if and only if extra benefits are at least equal to extra costs

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3
Q

incentive principle

A

a person is more likely to take action if its benefit rises and less likely if its cost rises

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4
Q

economics

A

study of how people make choices under scarcity

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5
Q

three decision pitfalls

A

treat small proportional changes as insignificant
ignore implicit costs
fail to think at the margin

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6
Q

microeconomics

A

individual choices and group behaviour in individual markets

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7
Q

macroeconomics

A

study of performance in national economies and policies govs use to improve economic performance

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8
Q

demand curve

A

downward sloping line, quantity buyers demand at any given price

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9
Q

supply curve

A

upward sloping, quantity sellers offer at any given price

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10
Q

variations in price

A

effected by willingness to pay

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11
Q

market equilibrium

A

when the quantity buyers demand = quantity sellers offer
measures value of last unit sold and cost required to produce it

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12
Q

excess supply

A

price of a good is above equilibrium value
motivates sellers to reduce prices

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13
Q

excess demand

A

price of a good is below equilibrium value
motivates buyers offer higher prices

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14
Q

what changes effect demand curve

A

increase in demand, increase in equilbrium price and quantity
decrease in demand, decrease in equilibrium price and quantity

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15
Q

what changes effect supply curve

A

increase in supply, decreases in equilibrium price, increase in quantity
decrease in supply, increase in equilibrium price, decrease in qunatity

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16
Q

what changes effect supply curve

A

increase in supply, decreases in equilibrium price, increase in quantity
decrease in supply, increase in equilibrium price, decrease in quantity

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17
Q

efficiency principle

A

efficiency is an important social goal, when pie grows larger everyone can have a bigger slice

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18
Q

equilibrium principle

A

market equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action

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19
Q

price elasticity of demand

A

measure of how strongly buyers react to change in price
percentage change in quantity demanded for 1% change in price

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20
Q

elastic good

A

price elasticity > 1

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21
Q

inelastic good

A

price elasticity < 1

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22
Q

unit elastic

A

price elasticity = 1

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23
Q

price elasticity of demand/supply at a point formula

A

(ΔQ/Q) / (ΔP/P)
(P/Q) x (1/slope) for straight line

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24
Q

how does reduced price effect elasticity

A

increased total spending if good is elastic
reduced if good is inelastic

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25
Q

how does increased price effect elasticity

A

increased total spending if good is inelastic
reduced if good is elastic

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26
Q

when does total expenditure on a good reach maximum

A

when price elasticity of demand = 1

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27
Q

accounting profit

A

difference between revenue and expenses

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28
Q

economic profit

A

revenue - (explicit + implicit costs)

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29
Q

normal profit

A

difference between accounting and economic profit

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30
Q

no-cash-on-the-table principle

A

if someone owns a valuable resource, market price of that resource will typically reflect its economic value

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31
Q

total economy surplus

A

measure of the amount by which participants in a market benefit by participating in it
sum of total consumer surplus and total producer surplus

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32
Q

rational consumer

A

allocates income among different goods so marginal utility gained from the last dollar of each good is the same

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33
Q

law of demand

A

people do less of what they want to do as the cost of doing it rises

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34
Q

principle of increasing opportunity cost

A

rational producers take advantage of their best opportunities first, moving on to more costly/difficult opportunities after the best ones have been exhausted

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35
Q

law of diminishing returns

A

when some factors of production are held fixed, the amount of additional variable factors required to produce successive increments in output grows larger

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36
Q

utility maximisation formula

A

MUa/Pa = MUb/Pb

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37
Q

consumer/producer surplus formula

A

1/2 x Q x ΔP

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38
Q

average labour productivity

A

output / employees

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39
Q

aggregate output

A

C + I + G + NX

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40
Q

point price elasticity formula

A

ΔQ/ΔP x P/Q

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41
Q

MC < AVC

A

AVC decreases

42
Q

MC = AVC

A

curves intersect, lowest point on graph

43
Q

net investment calculation

A

gross investment - capital depreciation
i - (d+n) k

44
Q

prisoners dilemma

A

cooperate with a partner, both benefit
betray partner for individual reward

45
Q

nash equilibrium

A

player achieves desired outcome by not deviating from initial strategy, numbers are the same in grid

46
Q

cournot model

A

rival companies compete on amount of output produced

47
Q

gini coefficient

A

measure of how different groups receive differing shares of total household income
eg bottom 5% may share bottom 1% of income

48
Q

comparative advantage

A

produce a good at a lower cost than everyone else

49
Q

negative externality

A

occur when production/consumption impose external costs

50
Q

positive externality

A

if production/consumption benefits a third party not involved in transaction

51
Q

marginal product capital formula

A

ΔY / ΔK

52
Q

gross investment per worker

A

i = sy = 1

53
Q

required investment per worker

A

(d+n)k

54
Q

constant returns to scale

A

average inputs and outputs are proportional

55
Q

marginal prosperity to consume

A

ΔC / ΔY

56
Q

income expenditure multiplier

A

1 / 1-MPC

57
Q

AS=AD model formula

A

Y = C+I

58
Q

liquidity trap

A

occurs when interest rates fall so low that most people prefer to let cash sit than invest

59
Q

increase aggregate demand

A

when the components of aggregate demand–including consumption spending, investment spending, government spending, and spending on net exports –rise

60
Q

seignorage

A

profits made by gov issuing currency, difference between face value of coins and production costs

61
Q

elasticity

A

an economic concept used to measure the change in the aggregate quantity demanded of a good or service in relation to price movements of that good or service

62
Q

price elasticity of demand

A

percentage change in quantity demanded by change in price

63
Q

profit maximisation monopolies

A

MR=MC, if MR>MC then more output can be produced for maximisation

64
Q

marginal revenue formula

A

change in total revenue / change in output

65
Q

marginal cost formula

A

deriative of total cost

66
Q

perfectly competitive firm price

A

= MR

67
Q

monopoly price

A

> MR

68
Q

ultimatum bargaining game

A

experimental economists game, two parties interact anonymously and only once

69
Q

monopsony

A

only one buyer in market

70
Q

tragedy of the commons

A

individuals with access to public resource act in their own interest

71
Q

moral hazard

A

lack incentive to guard against financial risk

72
Q

production curve increase

A

capital and labour moves point up curve
technological improvement cause curve to shift

73
Q

increased money supply

A

more economic growth

74
Q

decreased money supply

A

less economic growth

75
Q

quantative easing QE

A

buy bonds to increase prices and decrease long term interest rates

76
Q

how does inflation affect unemployment

A

inflation rises, unemployment falls

77
Q

monetarism

A

implies nominal income is a function of money supply

78
Q

balance for official financing

A

balance of monetary movements in and out country

79
Q

coase theorem

A

bargaining between individuals/groups over property rights causes optimal and efficient outcome

80
Q

marginal product of labour

A

change in production output / change in input labour

81
Q

isoquants

A

curve when plotted shows all combinations of two factors that produce a given output

82
Q

perfect compliments isoquants

A

l-shaped

83
Q

perfect substitutes isoquants

A

straight line

84
Q

long run equilbrium

A

when prices adjusted to production costs

85
Q

when is labour supply curve backward bending

A

when higher wage encourages people to work less and have more leisure

86
Q

monopolist

A

lone seller of a product

87
Q

oligopolist

A

one of a few sellers in a market

88
Q

monopolistic competitor

A

large number of firms that sell similar, but slightly different products

89
Q

market power

A

power to set the price of a product

90
Q

perfectly competitive firm elasticity

A

infinitely elastic curve

91
Q

what causes market power

A

control over important inputs, economies of scale, patents and gov licenses and network economies

92
Q

perfectly discriminating monopolist

A

charges each buyer their reservation price

93
Q

law of diminishing returns

A

when a firms capital and other productive inputs are held fixed in the short run
adding workers beyond a point increases output less and less

94
Q

positive analysis

A

objective to determine the consequences of a proposed policy

95
Q

normative analysis

A

address whether a particular policy should be adopted

96
Q

GDP

A

market value of final goods produced in a country in a given period

97
Q

cyclical unemployment

A

caused by changes in economy eg recession/boom

98
Q

frictional unemployment

A

short-term, when someone is searching for a job

99
Q

structural unemployment

A

mismatch of skills, may be from increased industrial improvements

100
Q

if price elasticity of demand is 2

A

buy 2% more of the good in response to a 1% price cut

101
Q

cross price elasticity of demand

A

percentage change in quantity demand after a price change for another good

102
Q

income elasticity of demand

A

economic measure of how responsive quantity demanded for a good or service is to a change in income

ECON 102 (26 decks)

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