Econ Exam 1

as scientists, economists make positive statements in an attempt to describe the world as it is.

as policy advisors, economists make normative statements in an attempt to describe  how the world should be.

when society gets the most from its scarce resources

• a market in which there are many buyers and sellers
• each individual person's decision won't really affect the market as a whole

• all the goods that are being sold are exactly the same.
• Because buyers and sellers in perfectly competitive markets must accept the price the market determines, they are said to be price takers.

• quantity on the x-axis
• price on the y-axis

The quantity demanded of a good falls when the price of that good rises.

• 2 goods are substitutes if an increase in the price of one good leads to the increase in demand of the other good. 
• ex: coke and pepsi

• 2 goods are complements if an increase in the price of one causes a decrease in demand for the other.
• in essence, they go together.
• ex. bagels and cream cheese

• A good for which an increase in income will lead to in increase in demand.
• ex: angus beef, or eating out more

• A good for which as income increases, demand decreases.
• ex: spam, McDonald's

• When the price of a good rises, the quantity supplied also rises.
• And then the price of a good falls, the quantity supplied also falls.

the price of any good adjusts to bring the quantity supplied and quantity demanded into balance. 

• Every first Friday of the month
• reports number of jobs added to the economy and the unemployment rate.

• A measure of how much the quantity demanded of a good responds to a change in price of that good. 
• % change in quantity demanded / % change in price

• when demand is inelastic, it is not responsive to price changes.
• elasticity is between 0 and 1.
• ex: eggs, kidney donations, milk

• An elastic good's demand is very sensitive to price changes.
• If the price of an elastic good goes up, consumers can simply switch to a cheaper alternative, or not buy the product at all.
• elasticity is greater than 1.
• ex: cars, yachts

• price x quantity
• the total revenue received by the supplier

• A measure of how much the quantity demanded of one good responds to a change in the price of another good. 
• in substitutes its positive.
• in complements its negative.

• A measure of how much a good's demand changes when a person's income changes.
• for normal goods it's positive.
• for inferior goods it's negative.
• food and clothes have smaller income elasticities.
• diamonds and cars have larger income elasticities.