micro economics 1

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micro economics 1
2011-10-12 12:51:01

exam 1
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  1. economics
    • how people make choices under the conditions of scarcity and the results of the choices for society
    • 3 central features: what and how much to produce, how to produce, and for whom
    • microeconomics: study of ind'l choice under scarcity and how the choices is influenced by economic forces
  2. economic reasoning
    • trained to compare cost and benefits of any decision
    • cost-benefit approach: taking out unimportant elements and focusing on important ones by creating simple models
  3. Marginal Cost/Marginal Benefits
    • Marginal Costs: increase in total cost that results from carrying out one additional unit of output
    • Marginal benefits: increase in total benefit from one additional consumption of a good
    • Sunk Cost: cost that cannont be recovered at the moment a decision has been made
  4. opportunity cost
    the next best thing that you giving up for something else (trade-off)
  5. economic force/market force
    • economic force: the necessary reaction to scarcity (limited amount)--trading cards
    • market force: economic force that is given relatively free rein by society, rations goods by chaning prices
  6. postive/normative economics
    • positive economics: what is/how the economic works, tested, true/false
    • ex)do price restrictions affect market forces
    • normative economics: goals of the economy is
    • ex)what should the distributuion of income be in an economy?
  7. production possibility model
    graph showing the cocept of opportunity cost graphically and numerically
  8. PPF (production poss. frontier)
    • alt combinations that describes the max amounts of one good that can be produced for every possible level of production of the other good
    • limit to what is attainable (amount of resources)
    • every choice involves an opportunity cost
  9. comparative advantage
    • one person has comparativeadvanate over another if his opportunity cost of performing a task is lower than other person's opportunity cost
    • efficiency: producing a good as cheaply as possible or to attain as much output as possible givin the resources (inputs)
    • specialization: leads to countries consuming more than their own capacities
  10. neutral/biased technological change
    • neutral tech change: improvemnt occurs for both products
    • biased tech change: improvent only on one product
  11. demand
    • def: shows the quantity that demanders are willing and able to buy at different prices in a given time period
    • demand curve: graph that shows the demand schedule of how customers respond to higher prices by buying less and to lower prices by buying more
    • determinants of demand:
    • 1. price of the good (movement along curve
    • 2. income
    • 3. price of other goods
    • 4. taste/preference
    • 5. expectation
    • 6. population (#of buyers)
    • 7. taxes
    • 8. wealth
    • law of demand: there is an inverse realtionship, the lower the price the greater the quanity demanded
    • a change in the price can only cause a change in thequantity demanded
    • price doesn't cause a change in demand only quantity
  12. subsitute goods/complimentary goods
    • subsitute: demand curve will shift to the left, decrease in price of one good leads to the decrease in demand for other good
    • complimentary: goods that we consume jointly, a decrease in the price of one goods lead to an increase in the demand for the other good
  13. normal good/inferior good
    • normal: good for when demand increases when income increases (curve shifts to the right)
    • inferior good: goo for which demand decreaes when income increases, consume less (generic brand)
  14. Supply
    • quanity supplied: the quantity that sellers are willing and able to sell at a particular price
    • law of supply: positive relaitonship, higher the price, the greater the quantity supplied
    • determinants of supply:
    • 1. price (movement along curve)
    • 2. number of sellers
    • 3. expectatins (price in future)
    • 4. production costs
    • 5. tech progress
    • 6. climate/weather conditions
    • 7. prices of related goods
    • 8. taxes(left)/subsidies (right)
    • a change in price will only cause a change in the quanity supplied
  15. Market equilibrium
    • market: a group of buyers/sellers with the potential to trade with each other
    • market equilibrium: q. demanded = q. supplied
    • market mechanisms: laws ofthe market at work
  16. gov. intervention in the market
    • excess supply: amount by which supplied exceeds demaded, price exceeds equilibrium price
    • excess demand: amount by which demanded exceeds supplied when prices is below equiibrium price
    • price ceiling: price impsed below market price, max allowable price (excess demand/shortage)
    • price floor: price imposed above market price, min allowalble price (excess supply/surplus)
    • extice taxes: tax that is levied on a supplier or buyer, of unit of product produced or consumed
  17. elasticity
    • def: measures how much one economic variable responds to chagnes in another econ var
    • elasticity of demand: the responsiveness of quanity demanded to price changes
    • price elasticity of demand: the respnsiveness of the quantity demanded is to prices changes
    • determinants of elasticity of demand:
    • 1. necessities of luxuries
    • 2. availability of substitues
    • 3. price of the good relative to income
    • 4.time
    • elastic: price elasticity i greater than 1 in absolute value (react to price change)
    • inelastic: price elasticity is less than 1 (don't react to price change)
    • unit elastic: price elastic is equal to 1