Econ Exam 1

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Econ Exam 1
2012-10-02 21:59:41
econ microecon supply demand

Definitions of Terms
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  1. Positive Statements
    as scientists, economists make positive statements in an attempt to describe the world as it is.
  2. Normative Statements
    as policy advisors, economists make normative statements in an attempt to describe  how the world should be.
  3. Efficiency
    when society gets the most from its scarce resources
  4. Competitive Market
    • a market in which there are many buyers and sellers
    • each individual person's decision won't really affect the market as a whole
  5. Perfectly Competitive Market
    • 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.
  6. Demand Curve
    • quantity on the x-axis
    • price on the y-axis
  7. Law of Demand
    The quantity demanded of a good falls when the price of that good rises.
  8. Substitutes
    • 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
  9. Complements
    • 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
  10. Normal Good
    • A good for which an increase in income will lead to in increase in demand.
    • ex: angus beef, or eating out more
  11. Inferior Good
    • A good for which as income increases, demand decreases.
    • ex: spam, McDonald's
  12. Law of Supply
    • 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.
  13. Law of Supply & Demand
    the price of any good adjusts to bring the quantity supplied and quantity demanded into balance. 
  14. Jobs Day - when? what does it report?
    • Every first Friday of the month
    • reports number of jobs added to the economy and the unemployment rate.
  15. Price Elasticity of Demand
    • 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
  16. Inelastic Demand
    • when demand is inelastic, it is not responsive to price changes.
    • elasticity is between 0 and 1.
    • ex: eggs, kidney donations, milk
  17. Elastic Demand
    • 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
  18. Expenditure
    • price x quantity
    • the total revenue received by the supplier
  19. Cross-Price Elasticity of Demand
    - what is it in substitutes and complements?
    • 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.
  20. Income Elasticity of Demand
    - what is it for normal and inferior goods?
    • 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.