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We don't have as much as we want
Stored purchasing power
Decision at the Margin
You go until the cost of getting that next thing outways the benefit
Anything that can be used to produce something else
The value of the most valuable option you give up when you do something.
When you compare the costs with the benefits of doing something
- Anything that offers rewards to people who change their behavior
- This drives markets to equilibrium because everyone moves to be better off until no one can be better off
Gains From Trade
- People can get more of what they want through trade than they could if they tried to be self-sufficient
- Specialization: each person does what he or she is good at
When no individual would be better off doing something different.
- Taking all opportunities to make some people better off without making other people worse off
- Perado efficiency: cannot make anyone better off without making someone else worse off.
- Perado improvment: making someone better off w/out others worse off.
- Everyone gets his or her fair share, but is not always efficient.
- Example is handicap spaces
- Marginal social benefit does not equal marginal social cost
- When parties outside the transaction are affected.
- Total benefit =/ total cost
- Ex. Deodorant
Simplified representation of a real situation that is used to better understand real life situation
Other things equal assumption
All ofther relevent factors remain unchanged
Production Possibility Frontier
- Illustrates the trade-offs facing an econmony that produces only two goods.
- Assume only 2 jobs
- Example with coconuts and fish
Increasing Opportunity Cost
- Have to give up more and more to get it.
- Curve is slopped outwords
- The curve expands outword
- Either more resources or better technology
The opportunity cost of producing that good is lower for that individual than others, then they have comparative advantage
- He or she can do it better than other people.
- This has to do with the actual action but does not take into account opportunity cost
- Statment about what is
- Means someone has to be wrong
- Makes prescriptions about the way the economy should work
- What should be done
- Value judgement
- No one is wrong
- Place where buyers and sellers meet
- Buyers(demand) and sellers(supply) do not mix until market
- Is most simple
- Many buyers and sellers with all the same power
- No one can set price
- NOT a number
- Relationship between quantity demanded and price
- Quantity Demanded: amount buyer is willing and able to buy. Is a number
- A change in price alone CAN NOT change demand, only quantity demanded.
- Shows how much willing to buy at different prices.
- Pairs price and quantity demanded together at certain price
- Price and Quantity demanded have inverse relationships
Law of Demand
There is a negative (indirect) relationship between price and quantity demanded
- Slope of curve is negative
- Price changes quantity demanded
- Change demand: more buyers, more income, tates and preferences. Almost anything besides price changes demand
Increase in Demand
- Shift to the right
- At every price, we want just a little bit more
- Price stays the same, quantity demanded increases
- These are products that are used together
- Fall in price of one good makes consumers less willing to buy the other good
- Use one or other, but are still related
- If the fall in price of one good makes consumers more willing to buy the other good
- The more income, the more of the product you want
- ex. cars
- When rise in income decrease the demand for the good
- ex. Ramin
- Relationship between price and quantity supplied
- Behavior of sellers
- Directly related relationship
Factors of Supply
- More resorces
- Number of Producers
- Increases in Capital
Equilibrium in competitive market
Quantity demanded = Quantity supplied of that good.
- Quantity supplied exceeds the quantity demanded.
- Surpluses occur when the price is above its equilibrium level.
- Price moves down
- Got more than want
- Quantity demanded exceeds the quantity supplied.
- Shortages occur when the price is below its equilibrium level.
- Want more than we got
Demand and Supple shift same direction
- Price is ambiguous
- Quantity goes up or down depending if they increase or decrease
Demand and Supply shift oppositly
- Quantity is ambiguous
- Demand decreaes and supply increase, price goes down
- Demand increases and supply decrease, price goes up
- How much better off the consumer is for having bought the stuff
- Area under Demand curve but above Price you pay
- Increase in consumer surplus means a fall in price of product
- How much better of the producers in because bought and sold in market
- Area above supply curve and below price
- Rise in price increases producer surplus
Sum of consumer and producer surplus
- Max Price seller are allowed to charge
- Holds price down
- Must go below equilibrium
- Min price buyers are required to pay
- Holds price up
- Goes above equilibrium price
- Loss in total surplus
- Low quantity, quality, wated resources, black markets
Upper limit on quantity of some good that can be bought or sold
- Total amount of good that can be leagally transacted
- Taxi medalians
Gives it's owner the right to supply a good
The price at which consumers will demand that quantity
The price at which suppliers will supply that quantity
Price paid by buyers is larger than price paid by sellers
Difference between demad and supply price at the quota limit.
Price of elasticity of demand
- Ratio of the % change in the quantity demanded to the % change in the price as we move along the demand curve
- Qfd-Qid/Qid is the top
- Pf-Pi/Pi is bottom
- Qfd-Qfi/.5(Qfd+Qid) is top
- Pd-Pi/.5(Pd+Pi) is bottom
- Quantity demanded does not respond at all to changes in the price.
- When demand is perfectly inelastic, the demand curve is a vertical line.
- Any price increase will cause the quantity demanded to drop to zero.
- When demand is perfectly elastic, the demand curve is a horizontal line.
Price elasticity of demand is greater than 1.
Price elasticity of demand is less than 1.
Price elasticity of demand is exactly 1.