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ECO 211 Midterm
| Question | Answer |
|---|---|
| microeconomics | the study of individual decisions made by agents |
| macroeconomics | the study of entire economies, focusing on large-scale factors and their interactions |
| scarcity | limited resources |
| trade-off | among a given set of alternatives, this is what we give up to chose something else |
| opportunity cost | the net value of the best alternative that was not chosen |
| thinking at the margin | evaluating the additional costs and benefits of incremental changes |
| incentives | positive or negative factors that influence behavior |
| endogenous incentives | arising from within |
| exogeneous incentives | originating from outside |
| constraint | the amount of something you have to trade with |
| economics | the study of decision-making, with a focus on how agents allocate scarce resources effectively |
| positive analysis | describes the world as it is |
| normative analysis | statements about how things should be |
| model | a simplified way of looking at a complex real-world process or system, focusing only on the most important parts |
| numerical function | a process that assigns to each element x of a set X at most one element of a set Y, denoted f(x) |
| graph of a function | the set of points with coordinates (x, f(x)), where x represents a number and f(x) is its image under the function f |
| linear function | a and b are constant numbers, where the function assigns to each number x the number a*x +b with coefficient a and y-intercept b |
| increasing functions | this happens when a function has any two numbers, x1 and x2, within an interval, where x1 < x2 so f(x1) ≤ f(x2) |
| decreasing functions | this happens when a function has any two numbers x1 and x2 within an interval, where x1 < x2 so f(x1) ≥ f(x2) |
| constant functions | this happens when a function has any two numbers x1 and x2 within an interval, where f(x1) = f(x2) regardless of the order of inputs x1 and x2 |
| monotonicity | when a function is either entirely non-increasing or non-decreasing over its domain; in other words, it maintains the same direction of variation throughout its domain and it is not constant |
| reciprocal/inverse function | reverses the mapping of a function, assigning outputs back to their corresponding inputs. for it to exist, the original function must be one-to-one, ensuring each output corresponds to a unique input |
| market | an environment facilitating the interaction between buyers and sellers with the potential for a transaction to occur |
| centralized markets | transactions occur through a central authority/system |
| decentralized markets | buyers and sellers interact directly without the need for a central authority |
| marginal benetif | the additional benefit or satisfaction a person gains from consuming one more unit of a good or service |
| willingness to pay | the maximum amount of money an individual is prepared to spend to acquire a good or service |
| law of demand | all else being equal, the quantity demanded of a good falls as its price rises, and conversely, the quantity demanded rises as its price falls |
| normal goods | demand for this type of good increases as income increases |
| inferior goods | demand for this type of good decreases as income increases |
| superior goods | demand for this type of good disproportionately increases as income increases |
| substitutes | goods that can replace one another in consumption |
| complements | goods that are consumed together |
| (internal) consumer driven factors | consumer preferences, expectations, and population and demographics |
| (external) market driven factors | government policies and regulations and seasonal factors |
| government policies and regulations | taxes, subsidies, and other policies directly impact demand, by altering the (net) value consumers derive from a good |
| seasonal factors | the value individuals place on certain goods often depends on the time of year |
| marginal cost | the additional cost incurred from producing one mroe unit of a good or service |
| willingness to sell | the minimum amount of money a producer is prepared to accept to sell a good or service |
| law of supply | all else being equal, the quantity supplied of a good rises as its price rises, and conversely, the quantity supplied falls as its price falls |
| determinants of demand | income, price of related goods, internal factors, external factors |
| determinants of supply | input prices, technological advances, number of sellers, expectations, external factors |
| market equilibrium | the combination of price and quantity at which the quantity supplied quals the quantity demanded |
| characteristics of a competitive market | large number of buyers and sellers, homogeneous product, free entry and exit, and perfect information. or where the marginal cost of producing one additional unit is equal to the marginal benefit derived from consuming that unit |
| market price | the price at which this balance is achieved |
| comparative statics | when an events shifts the supply curve, the demand curve, or both, the market adjusts to a new equilibrium |
| three steps to comparative statics | 1. is supply, demand, or both affected? 2. what is the direction of the shift? 3. what is the change in the equilibrium point? |
| absolute change | the raw numerical difference between two values, indicating how much one quantity has increased or decreased relative to another. calculated by subtracting the initial value from the final value |
| relative change | measures the proportional difference between two values, expressed as a fraction or percentage or the initial value |
| rate of change | quantifies how one quantity changes in relation to another. it is given by the ratio of the vertical change (Δy) to the horizontal change (Δx) |
| elasticity | measures how much one variable responds to changes in another |
| general elasticity formula | E = (Δy/Δx) * (x/y) |
| midpoint fomula | Ebar = (Δy/Δx) * ((x1 + x2)/(y1+y2)) |
| price elasticity of demand formula | E DP = (ΔQ D/ΔP) * (P/Q D) |
| when is demand elastic? | when |E DP| > 1 |
| when is demand inelastic? | when |E DP| < 1 |
| when is demand unit elastic? | when |E DP| = 1 |
| what does perfectly inelastic demand look like graphically? | a straight vertical line |
| what does perfectly elastic demand look like graphically? | a straight horizontal line |
| what does inelastic demand look like graphically? | steep negative slope |
| what does elastic demand look like graphically? | flat negative slope |
| what does unit elastic demand look like graphically? | even curved line, x and y change at same rate |
| factors of elasticity | availability of close substitutes, necessities vs luxuries, definition of the good-market (extent), time horizon |
| cross-price elasticity of demand formula | E X,Y = (ΔQ Y/ΔP X) * (P X/Q Y) |
| cross-price elasticity of demand value with substitutes | E X,Y > 0 |
| cross-price elasticity of demand value with complements | E X,Y < 0 |
| cross-price elasticity of demand value with unrelated goods | E X,Y ~ 0 |
| income elasticity of demand formula | E I = (ΔQ/ΔI) * (I/Q) |
| income elasticity of demand when the good in a normal good | E I > 0 |
| income elasticity of demand when the good in a necessity good | 0 < E I < 1 (between 0 and 1) |
| income elasticity of demand when the good in a luxury good | E I > 1 |
| income elasticity of demand when the good in an inferior good | E I < 0 |
| elasticity of supply formula | E SP = (ΔQ S/ΔP) * (P/Q S) |
| what does elastic supply look like graphically? | flatter increasing slope |
| what does inelastic supply look like graphically? | steeper increasing slope |
| pareto-efficient | when are resources cannot be allocated to make an agent better off, without making at least one agent worse off |
| market failure | occurs when the forces of supply and demand result in an inefficient allocation of resources |
| reasons for market failure | market power, externalities, asymmetric information, irrationality, or government failure |
| sin goods | goods and services considered harmful to society |
| economic incidence | who ultimately bears the cost of a tax implementation (depends on whoever (suppliers or demanders) are more inelastic) |
| what do price ceildings create | shortages |
| what do price floors create | excess supply |
Created by:
ethompson238
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