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Macro Econ 1 S.G
Macroeconomics 1st exam study guide
| Question | Answer |
|---|---|
| What is the fundamental economic problem? | scarcity |
| is the meaning of "incentive matters"? | people's behavior responds to the rewards & penalties they face |
| define marginal | one more or one less |
| define marginal thinking | evaluating decisions by considering marginal changes |
| define opportunity cost | value of the next best alternative that you give up when you make a choice |
| examples of opportunity cost | you want oranges & giving apples, sleep vs studying, going to college instead of working |
| define normal goods | when income increases, demand increases |
| examples of normal goods | restaurants, phone, any good you normally would buy |
| define inferior goods | when income decreases, demand increases |
| examples of inferior goods | ramen, dollar general type stuff |
| define absolute advantage | given the same number of resources who can make more |
| define comparative advantage | who can make it as the lowest opportunity cost |
| define equilibrium | quantity demanded = quantity supplied, MC = MB |
| explain law of demand/supply | demand, price increases quantity demanded decreases. supply, price increases quantity supplied will increase |
| determinants that shift demand/supply | demand, taste, # of buyers, income, price of related goods, expectations. Supply, price of inputs, government policy, technology, # of sellers, expectations |
| movement along the demand/supply curve | change in price |
| define elasticity | how does quantity change when there is a price change |
| perfectly elastic/inelastic | elastic, horizontal. inelastic, vertical. |
| define consumer/producer surplus graph | consumer surplus, highest price, actual price. producer surplus, actual price, min price. area of a triangle, (base x height)/2 |
| how does elasticity affect shifts in demand/supply? | elasticity DOES NOT CAUSE shifts in demand or supply. Elasticity measure RESPONSIVENESS of quantity to price changes. When demand or supply curves shift, elasticity affects HOW BIG THE CHANGE IN QUANTITY is at the current price. |
| subjective value theory | it emphasizes that value is in the eye of the beholder, not an object characteristic of the good. |
| how does elasticity affect consumer/producer surplus | Elasticities tell us how big the gains or losses in surplus are when market conditions change |
| law of diminishing return | it only applies in the short run when at least one input is fixed. it explains why productivity can't keep increasing indefinitely just by adding more of one factor |
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leestudymaster
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