Unit 1 Flashcards
Which of the following should be used to determine specialization?
Comparative Advantage
How do you determine absolute advantage?
Whoever can produce more of any given product
How do you determine opportunity cost given numerical values?
Divide
Consider the market demand for peanut butter.
Choose whether each option will cause a movement along the demand curve (change in Quantity Demanded) for peanut butter or a shift of the demand curve for peanut butter, holding all else constant:
A change in the expectations of consumers about prices
A decrease in the price of hazelnut spread (a substitute for peanut butter)
An increase in the price of peanut butter
There is a tax cut that results in consumers having higher take home income
Shift
Shift
Movement Along
Shift
If a shortage exists in the car market, then the current price must be _____ than the equilibrium price. For the market to reach equilibrium, you would expect ____
lower; buyers to offer higher prices
If a surplus exists in the car market, then the current price must be ______ than the equilibrium price. For the market to reach equilibrium, you would expect _____
higher; sellers to offer lower prices
Between 2008 and 2009, the equilibrium price of laptops remained constant, but the equilibrium quantity of laptops increased. From this, you can conclude that between 2008 and 2009, the supply of laptops ________ and the demand for laptops ________
increase; increased
Suppose instead that between 2008 and 2009, the equilibrium quantity of laptops remained constant, but the equilibrium price increased. From this, you can conclude that between 2008 and 2009, the supply of laptops _______ and the demand for laptops ________
decreased; increased
Law of Demand
The claim that, with other things being held equal, the quantity demanded of a good falls when the price of that good rises
Demand Curve
A graphical object showing the relationship between the price of a good and the amount of the good that buyers are willing and able to purchase at various prices
Quantity Demanded
The amount of a good that buyers are willing and able to purchase at a given price
Demand Schedule
A table showing the relationship between the price of a good and the amount that buyers are willing and able to purchase at various prices
Law of Supply
The claim that, other things being equal, the quantity supplied of a good increases when the price of that good rises
Supply Schedule
A table showing the relationship between the price of a good and the amount of it that sellers are willing and able to supply at various prices
Supply Curve
A graphical object showing the relationship between the price of a good and the amount that sellers are willing and able to supply at various prices
Quantity Supplied
The amount of a good that sellers are willing and able to supply at a given price
The demand curve travels….
downwards
The supply curve travels…
upwards
Choose whether each event will cause a movement along the supply curve for peanut butter or a shift of the supply curve for peanut butter, holding all else constant:
A decrease in the number of producers
A decrease in the price of peanut butter
A change in expectations about the future price of peanut butter
An increase in the cost of peanuts to the peanut butter producers
Shift
Movement Along
Shift
Shift
Economics
the study of how humans make choices under conditions of scarcity
Microeconomics
the branch of economics that focuses on actions of particular agents within the economy, like households, workers, and business firms
Scarcity
when human wants for goods and services exceed the available supply
Law of diminishing marginal utility
as we consume more of a good or service, the utility we get from additional units of the good or service tends to become smaller than what we received from earlier units
Opportunity cost
measures cost by what we give up/forfeit in exchange; opportunity cost measures the value of the forgone alternative
Elastic demand
when the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded or supplied to changes in price
Inelastic demand
when the elasticity of demand is less than one, indicating that a 1 percent increase in price paid by the consumer leads to less than a 1 percent change in purchases (and vice versa); this indicates a low responsiveness by consumers to price changes
Price ceilings always create
a shortage
Price ceilings always go ___ equilibrium
below
Price floors will always go ___ equilibrium
above
What determines whether a good is elastic or inelastic?
if the absolute value is >1, it’s elastic
if the absolute value is <1, it’s inelastic
if the absolute value is =1, it is unit elastic
Inelastic sections of graphs are
very steep
A perfectly inelastic graph will appear
as a vertical line
A perfectly elastic graph will appear
as a horizontal line
What determines whether a good is normal or inferior?
if e is >0, it’s a normal good
if e<0, it’s an inferior good
Belden Good
break the law of demand; demand increases with price
Giffen Good
technically inferior, but quantity demand increases with price
How do we determine cross-price elasticity?
Q2-Q1/the average of Q / P2-P1/the average of P
What determines whether a good is a complement or a substitute?
if the number is negative, it’s a complement
if the number is positive, it’s a substitute
How do we determine budget constraints?
Budget equals==
Price of one item times the quantity of said item (as a variable)
Plus
Price of other item times the quantity of said item (as a variable)
Binding vs nonbinding price ceiling
Binding price ceilings are set below equilibrium, causing a shortage
Nonbinding price ceilings are set at equilibrium or below and CAN cause a surplus
Binding vs nonbinding price floor
A binding price floor is set above equilibrium
A nonbinding price floor is set at or below equilibrium
