WEEK 1 Flashcards
What are the decision pitfalls to avoid
Ignoring opportunity costs
measuring costs as proportions
Sunk costs should be ignored
When doing an activity it’s benefits/costs should be based on marginals
Micro versus macro
Micro is individual choice under scarcity and how it effects the market
Macro is national economies and policies to improve them
Was is positive economics
Independent of the ethics
What is normative economies
Economist takes ethics in mind
What is the Y and X in the demand curve equation
QD = Y
P = X
Demand curves are mostly what way sloping
Downwards sloping
When are demand curves upwards sloping
When luxury goods are involved
What are the 2 effects in the demand curve
Substitution effect
Income effect
What is the substitution effect
When the price of a good rises so consumers switch to another good
What is the income effect
As prices rise people have less money so demand decreases
What is buyers reservation price
Largest amount a consumer will pay - Equal to the benefit the good will provide
What dos the supply curve show
The relationship between the price and how much sellers want to sell for
What way does the supply curve slope
Upwards
As price increases and decrease what do the sellers do
As increase - sellers wish to sell more
As decrease - sellers wish to fall less
What is the Y and X in a supply curve
Y = Qs
X = P
Why are supply curves upwards
Sellers reservation prices
minimum prices
When in equilibrium what happens with change
There is no pressure to change
How do we find the equilibrium
make the supply and demand equations equal each other and solve for P
What is excess demand
Buyers want to buy but cannot other higher prices
Upwards pressure on prices
What is excess supply
Sellers want to sell but prices are too low
Downwards pressure on prices
Whats a price floor
A maximum price a good can be sold for
What happens if a price floor is above the equilibrium price
Nothing as buyers will pay the equilibrium still as under reservation
What happens if a price floor is below the equilibrium price
Excess demand
