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sherieberry
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Marginal changes
Small incremental changes to a plan of action
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Economics
Study of how society manages its scarce resources
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Market economy
Economy that allocates resources through dercentralized decisions of many firms and households as they interact in markets for goods and services
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Property rights
Ability of individual to own and excercise control over scarce resources
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Market failure
Situation in which a market left on its own fails to allocate resoyrces efficiently
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Externality
Impact of one person's actions on the well-being of a bystander
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Market power
Ability of single person/grupp to have substantial influence on market prices
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Productivity
Quantity of goods and services produced from each unit of labor
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Business cycle
Fluctuations in econ activity such as employment and production
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Inflation
Increase in overall level of prices in economy
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Positive statements
How world is
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Normative statements
How world should be
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Feasible on PPF
On and inside
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Opportunity cost
Negative slope of PPF
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PPF Bowed Out
Econ is increasing
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Resources change. PPF?
Shift up/down. Slope is constant.
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Absolute advantage
Use less resources to produce same amt. Indicates how country's econ will do. Doesn't explain how trade will occur.
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Comparative advantage
Ability to produce at lower OC. In trade, each country will specialize in product with CA.
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Market
Buyers and sellers of a good or service
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Competitive market
No single buyer/seller can influence market outcome
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Perfectly competitive market
Many buyers and sellers. No single individual can influence price. Free entry/exit. No difference in product quality.
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Law of Demand
As price increases, demand decreases
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Inverse demand function
P = a - bQd
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Demand function
Qd = c - bP
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Demand shifters
- Income
- Price or related goods
- Taste
- Expectations
- Number of buyers
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Supply function
Q = a + bP
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Inverse supply function
P = c + dQ
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Supply shifters
- Price of inputs
- Tech
- Expectations
- Number of sellers
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Equilibrium
Market price has reached Qs = Qd
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Elasticity
Responsiveness of Qd and Qs to one of their determinants
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Elasticity determinants
- Availability of subs
- Neccessities v luxuries
- Definition of market
- Time horizon
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Elasticity is usually
Negative
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Inelastic (demand)
Ed < 1
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Income elasticity of demand
Qd / I
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Cross-price elasticity
Qd / P
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Price elasticity of supply
Qs / P
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Inelastic (supply)
Es < 1
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Price ceiling
Legal max on price
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Price floor
Legal min on price
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Per unit tax
For each unit sold, t dollars given to govt
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Welfare economics
Study of how allocation of resources affects economic well-being
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Willingness to pay
Max amt a buyer will pay
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Consumer surplus
WTP - price
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Cost
Value of everything (ie time) needed to produce a good
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Producer surplus
Price - cost
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Dead weight loss
Fall in total surplus that results from market distortion
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