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Macro exam 1
| Question | Answer |
|---|---|
| economics | The study of how people use limited resources to satisfy their unlimited wants and needs.(How people make choices because they can't have everything they want.)You can't have everything, so you have to choose. |
| opportunity cost | The next-best thing you give up when you make a choice ex:You have $20 and choose to buy a video game instead of going to the movies.( The opportunity cost is the movie you gave up.)Think: “What did I give up?” |
| Opportunity Cost formula | Opportunity Cost = What you give up ÷ What you get |
| Marginal Cost (MC) = | The extra cost of doing one more unit of something.(How much more will it cost me to make ONE additional item?) if i have $200 to make pizza and each pizza is $10 so i can make 20 pizza but if i make 21 pizza the marginal cost is $10 |
| Marginal Benefit (MB) = | The extra benefit you get from doing one more unit of something if i worked 8 hours and i was debating on working another hour the benefit would be i would make more money |
| When making a decision:MB > MC → | Do it! The benefit is greater than the cost. |
| When making a decision: MB < MC → | Don't do it! The cost is greater than the benefit. |
| When making a decision:MB = MC → | You're at the best/efficient point. |
| Microeconomics: | The study of how individual people, businesses, and markets make economic decisions.Micro = individual/small → one person, business, or market |
| Macroeconomics = | Looks at the whole economy. Macro = whole/big → the entire economy |
| Positive economics: | The study of what is based on facts and evidence. Example: “If the price of a product increases, people will usually buy less of it.”or “The unemployment rate is 5%.” |
| Normative economics: | The study of what the economy should be based on opinions or values. Example: “The government should increase unemployment benefits.” |
| An entrepreneur = | A person who starts and runs a business, takes risks, and tries to make a profit. |
| 4 economic resources | these are the four things used to produce goods and services.Land, labor, capital, entrepreneurship ability |
| economic resourse:Land- | natural resources Ex: water,oil, trees, land |
| economic resourse:Labor- | physical or mental work people do to produce goods and services. human work, EXTeachers, construction workers |
| economic resources:.Capital- | Tools and equipment used to produce things Ex Machines, computers, factories Capital does NOT mean money |
| economic resources:entrepreneurship ability - | the ability to start, organize, and run a business while taking risks. Coming up with a business idea, Starting a new restaurant,Taking the risk of investing your money,Hiring workers,Making business decisions |
| Production Possibilities Curve (PPC) = | Production Possibilities Curve (PPC) = A graph showing the maximum combinations of two goods an economy can produce using its available resources and technology. |
| Main assumptions: The basic PPC assumes: | There are only two goods being produced. Resources are limited. Resources are being used efficiently. Technology is fixed. |
| Producing ON the curve | You are using resources efficiently.: You're getting the most possible production from your resources. |
| Producing UNDER/INSIDE the curve | You are not using resources efficiently.: Some resources are being wasted or unemployed. |
| Producing BEYOND/OUTSIDE the curve | You cannot currently produce that combination because you don't have enough resources or technology. |
| Opportunity Cost on the PPC | When you produce more of one good, you have to give up some of another good. Opportunity cost = Give up ÷ Get Example: |
| Opportunity Cost on the PPC example | If you gain 10 computers but have to give up 20 tons of wheat: Opportunity cost = 20 ÷ 10 = 2 tons of wheat per computer So, each additional computer costs you 2 tons of wheat. |
| Economic growth = | An economy's ability to produce more goods and services than it could before. |
| Economic Growth on the PPC | Economic growth causes the PPC to shift outward. |
| Market System | An economy where buyers and sellers make most decisions using supply and demand. Remember: “Buyers + Sellers = Decide.” |
| Characteristics of a market system: | Private property, freedom of choice, self interest, market and prices, entrepreneurship, profit, limited government, consumer sovereignty, dollar votes |
| Private Property | People and businesses can own property and resources. Example: You can own a house, car, or business. |
| Freedom of choice – | The ability to choose what you want to buy, sell, or do. You can choose to buy Nike shoes or Adidas shoes based on what you prefer. |
| Self-Interest- | People make decisions that they believe will benefit themselves. |
| Competition | -Businesses compete with each other for customers. Example: McDonald's and Burger King compete for customers. |
| Markets and Prices | Buyers and sellers interact in markets, and prices help determine what gets bought and sold. Example: If demand for strawberries increases, their price may increase. |
| Entrepreneurship | -People are free to start businesses and take risks to try to earn profit. |
| Profit | The money a business has left after paying its costs. |
| Limited Government | The government has limited control over the economy and businesses. |
| Consumer Sovereignty | Consumers decide what businesses produce by what they choose to buy..EX If consumers stop buying a product, businesses have to change or stop producing it. Consumer sovereignty = Consumers are in control. |
| Dollar Votes | The idea that every dollar you spend is like a vote for a product or business.👉 If you spend $5 on Starbucks, you're giving Starbucks a "vote." |
| Barter = | Trading one good or service directly for another good or service, without using money. Trade without money. |
| Is this a barter: You mow your neighbor's lawn, and they give you $20? | No bc money was used |
| blank | |
| Command system — | The government makes most economic decisions. government decides what to produce, how much to produce, and what prices to charge. |
| Command Economy vs. Market EconomyWho owns resources?Command economy (communism): | The government owns/controls most resources. |
| Command Economy vs. Market EconomyWho owns resources?Market economy (capitalism) | :Individuals and businesses can own resources. |
| Command Economy vs. Market Economy Who makes economic decisions?Command economy: | The government decides what to produce, how to produce it, and who gets it. |
| Command Economy vs. Market EconomyWho makes economic decisions?Market economy: | Consumers and businesses make these decisions through markets. |
| The 5 fundamental questions that all economies must address are: | What goods and services should be produced? How should goods and services be produced? Who should produce the goods and services? Who gets the goods and services that are produced? How can the economy promote economic growth and technological progress |
| The 5 fundamental questions 1. What to produce? | What goods and services should we make? Cars? Food? Computers? Healthcare? |
| The 5 fundamental questions 2. How to produce? | How should we make the goods and services? Should we use lots of workers or lots of machines? |
| The 5 fundamental questions 3. For whom to produce? | Who gets the goods and services? Who gets the cars, food, houses, etc.? |
| The 5 fundamental questions 4. How will the system adapt to change? | How will the economy respond when things change? New technology, changes in consumer tastes, shortages, etc. |
| The 5 fundamental questions5. How will the system promote economic progress? | How will the economy encourage growth and improvement?Better technology, more education, investment in capital, entrepreneurship, etc. |
| blank | |
| Total revenue = | All the money a business receives from selling its products. how much ur bring to the firm |
| If revenue is greater than costs | →Profit |
| If revenue is less than costs | → Loss |
| If revenue = costs | → Zero profit/break-even breakeven is ok |
| total revnue formula | price of product x quanity |
| total cost formula | (price x quanity (land)) +(price x quanity(labor)) + (price x quanity(capital)) + (price x quanity(entrepreneur)) |
| total profit formula | total revenue - total cost |
| When businesses make profits: | More businesses enter the industry. Why? Because people see that the industry is making money. |
| More businesses = | industry gets bigger |
| When businesses experience losses: | Some businesses leave the industry. |
| Fewer businesses = | industry gets smaller |
| Creative destruction = | When new products, technologies, or businesses replace older ones. |
| Creative destruction example | Example: Streaming services became popular → DVD rental stores became less popular. The new creates opportunities, but it can also destroy old businesses/jobs. |
| Circular Flow Model | The circular flow model shows how money, resources, goods, and services move between households and businesses. |
| circular flow model Households: | Provide resources/labor to businesses. Receive income. Use their income to buy goods and services. |
| circular flow model Businesses: | Hire resources/workers from households. Pay households income. Produce goods and services. Sell those goods and services to households. |
| The invisible hand | the idea that people pursuing their own self-interest can unintentionally help the economy as a whole. This idea is associated with economist Adam Smith. |
| The invisible hand example | A restaurant owner wants to make money.To make money, they need customers.To get customers, they may:Keep prices reasonable,Provide good service even though the owner is mai trying to make money for themselves, they are also giving something people want |
| Equilibrium Price: | The price where demand equals supply.(the price where buyers= sellers) |
| Equilibrium Quantity: | The amount bought and sold at that price. |
| Equilibrium is where quantity demanded = | quantity supplied. |
| Equilibrium On a graph, | :it is the point where the Demand (D) curve and Supply (S) curve intersect. Makes an x |
| Equilibrium Quantity On graph | The quantity at the intersection of supply and demand. |
| Equilibrium Quantity On graph example | If the graph shows supply and demand intersecting at: Price = $20 Quantity = 500 Then: Equilibrium Price = $20 Equilibrium Quantity = 500 units Remember: Equilibrium = where buyers and sellers agree. |
| Q: What is a price floor? | : A legal minimum price. Remember: Floor = can't go BELOW. |
| What is a price ceiling? | : A legal maximum price. Remember: Ceiling = can't go ABOVE. ⬆️ Example: Rent ceiling = $1,000 → landlords can't charge more than $1,000. |
| What is a surplus? | : Supply > Demand = too much. Remember: Surplus = TOO MUCH 📦 |
| What is a shortage? | Demand > Supply = not enough. Remember: Shortage = NOT ENOUGH |
| Relationship Between Price and Quantity Demanded/Supplied (Demand) | The relationship between price and quantity demanded is inverse. When price goes UP → quantity demanded goes DOWN When price goes DOWN → quantity demanded goes UP |
| Relationship Between Price and Quantity Demanded/Supplied (Demand)EXAMPLE | If a pizza costs $30, fewer people may buy it. If the pizza costs $10, more people will buy it. Price ↑ → Quantity Demanded ↓ Price ↓ → Quantity Demanded ↑ This creates a downward-sloping demand curve.Demand = opposite directions |
| Relationship Between Price and Quantity Demanded/Supplied (supply) | The relationship between price and quantity supplied is direct. When price goes UP → quantity supplied goes UP When price goes DOWN → quantity supplied goes DOWN |
| Relationship Between Price and Quantity Demanded/Supplied (supply)example | If a pizza restaurant can sell pizza for $30, it has more incentive to make pizzas.If it can only sell them for $5, it has less incentive to make them.Supply = same directions upward-sloping supply curve. |
| Income Effect | The income effect is the change in purchasing power caused by a change in price. If the price of something falls, your money can buy more. |
| Income Effect example | You have $20. A shirt costs $20 → you can buy 1. The shirt drops to $10 → you can buy 2. Your income didn't actually increase, but your purchasing power increased. That's the income effect.Income effect = purchasing power |
| Substitution Effect | The substitution effect happens when consumers switch to a cheaper alternative when the price of a good changes. |
| Substitution EffectExample: | Coke = $3 Pepsi = $2 If Coke becomes $5, you might buy Pepsi instead.Substitution effect = switching to another product |
| Marginal Utility | Marginal utility = the additional satisfaction you get from consuming one more unit of something. |
| Diminishing Marginal Utility . | Diminishing marginal utility means that as you consume more of something, the additional satisfaction from each additional unit decreases. |
| Diminishing marginal utility | Example: if ur rlly hungry and u eat a pizza You're still getting satisfaction, but each additional slice gives you less satisfaction |
| There are 5 major determinants of demand: | 1. Income 2. Prices of Related Goods 3. Tastes and Preferences 4. Expectations 5. Number of Buyers |
| Does A change in the price of the good itself shift the demand | : no, It causes a movement along the demand curve.A change in one of the 5 determinants shifts the entire demand curve. |
| .(income)Normal Good | As income increases, demand for a normal good increases. As income decreases, demand for a normal good decreases. |
| .(income)Normal Good: example | Steak New cars Name-brand clothing Vacations Example: Your income increases → you buy more steak. Normal = income and demand move together |
| (income)Inferior Good . | An inferior good is something people tend to buy less of when their income increases |
| (income)Inferior Good: example | Ramen noodles Used clothing Public transportation (in some contexts) Example: Your income increases → you stop buying ramen and start buying more expensive meals. Income ↑ → Demand for inferior good ↓ Inferior = income and demand move opposite |
| 2 types of related good: | substitutes, complements |
| (price of related good)Substitutes (price of related good)Substitutes | Substitutes are goods that can be used in place of each other. |
| (price of related good)Substitutes: example | Nike and Adidas Butter and margarine Coffee and tea Example: The price of Coke increases. People buy Pepsi instead. Therefore: Price of Coke ↑ → Demand for Pepsi ↑ Remember: Substitute = switch |
| price of related good)Complements | Complements are goods that are used together. |
| price of related good)Complements examples | rinters and ink The price of printers increases. Fewer people buy printers. Therefore, fewer people need printer ink. Price of printers ↑ → Demand for ink ↓ Complement = together |
| Tastes and Preferences | if people like a product less, demand decreases.If people like a product more, demand increases. A celebrity starts wearing a certain brand of shoes. The shoes become more popular. |
| Expectations | What people expect to happen in the future can change what they buy today.You hear that the price of iPhones will increase next month. You decide to buy one now. Current demand increases. |
| Number of Buyers | More buyers → Demand increases Fewer buyers → Demand decreasesMore buyers = demand right Fewer buyers = demand left |
| 6 DETERMINANTS OF SUPPLY | Input prices Technology Taxes & subsidies Expectations Number of sellers Prices of related goods |
| Input Prices | Input prices are the costs of the resources businesses need to produce something. Examples: Labor Materials Electricity Oil Rent |
| What happens when input prices increase? | Production becomes more expensive. Input prices ↑ → Supply ↓ → LEFT 🧠 Remember: Inputs expensive = Supply DOWN |
| Technology | Better technology usually makes production faster, easier, or cheaper. |
| What does better technology do? | Makes production faster/easier/cheaper. Better technology → Supply ↑ → RIGHT 🧠 Remember: Better technology = MORE supply |
| Taxes and Subsidies(taxes) | Taxes increase the cost of producing something. |
| What does a tax do to supply? | Increases production costs. Tax ↑ → Supply ↓ → LEFT 🧠 Remember: Tax = Supply DOWN |
| Taxes and Subsidies (subsidies) | oney the government gives producers to encourage production. Subsidy ↑ → Supply ↑ → RIGHT 🧠 Remember: Subsidy = Supply UP |
| Expectations | What businesses expect to happen in the future can affect how much they produce today. |
| Expectations example | If a business expects prices to fall in the future, it may want to sell more products now. vise versa |
| Number of Sellers More sellers = | more supply |
| Number of Sellers fewer sellers = | less supply |
| Prices of Related Goods | Businesses can produce different products using similar resources. If one product becomes more profitable, producers may shift resources toward that product. |
| Prices of Related Goods: example | Corn becomes more profitable → farmer grows more corn → less wheat 🧠 Remember: More profitable product = resources switch |
| What causes a change in quantity demanded? | A change in the price of the product itself. Causes movement ALONG the demand curve. Price changes = MOVE ALONG |
| What causes demand to change? | A change in one of the 5 demand determinants. Causes the ENTIRE demand curve to SHIFT. Price changes → Movement along Anything else → Shift |
| What is productive efficiency? | Producing something at the lowest possible cost. Are we making it as cheaply as possible? |
| What is allocative efficiency? | Producing the goods people want most.Allocative = What people WANT/ price = Marginal Cost |
Created by:
sophiasouza