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EC111 Midterm 1
| Question | Answer |
|---|---|
| Economics | The study of how individuals, organizations, and society make choices and how these choices determine the optimal allocation of limited resources |
| What are the Five Foundations of Economics | Incentives, Trade Offs, Opportunity Costs, Marginal Thinking, Trade Creates Value |
| Incentives | A factor that motivates a person to act or change |
| Trade Offs | With scarcity decisions incur costs Do I/We/Government do _____ or _____? |
| Opportunity Costs | The highest valued alternative that is sacrificed in order to get something else. Includes all costs (financial and otherwise) |
| Marginal Thinking | Whether the benefit of ONE more unit of something is greater than the cost |
| Comparative Advantage | the situation where an individual, business, or country can produce at a lower opportunity cost than it's trading partner(s) |
| Capitalistic Economic System | individuals determine what, how, and for whom to produce |
| Command Economic System | government determines what, how, and for whom to produce |
| Ceteris Paribus | examine a change in one variable while holding all others constant |
| Competitive Market | Many buyers and sellers exist where each one is unable to influence the market prices and output |
| Imperfect Market | Either the buyer or the seller can influence the price or output |
| Quantity Demanded | The amount of a good or service buyers are willing to and able to purchase at a given price |
| Law of Demand | With all other things being equal, quantity demanded falls when prices rise |
| Quantity Supplied | The amount of a good or service producers are willing and able to sell at a given price |
| Law of Supply | With all other things being equal, quantity supplied of a good rises when the price of a good rises and falls when the price of a good falls |
| Market Demand | The sum of all individual quantity demanded and by each market in a buyer at each price |
| Supply Demand | The sum of all individual quantity supplied at each price |
| Movement Along Supply/Demand Curve | Cause by a change in price of original good. Results in an increase/decrease of quantity demanded. |
| Shift in Demand/Supply Curve | Causes by a change in price of original good. The entire curve shifts left or right. |
| Factors that Shift Demand Curve | purchasing power, normal vs. inferior goods, consumer desire, complementary goods, substitutes, expectations of future prices, amount of buyers, taxes, subsidies |
| Increase Vs. Decrease of Demand on a Demand Curve | Increase= Shifts right because people buy more Decrease= Shifts left because people buy less |
| Increase Vs. Decrease in Supply on a Supply Curve | Increase= Shifts right Decrease= Shifts left |
| Factors that Shift the Supply Curve | cost of inputs, changes in tech or production process, taxes, subsidies, number of firms, price expectations |
| Equilibrium (point) | Where the supply and demand curves intersect |
| Equilibrium Price | The price where quantity supplied is equal to quantity demanded |
| Equilibrium Quanitity | The amount where quantity supplied is equal to quantity demanded |
| Shortages | Occurs below equilibrium Qs<Qd |
| Surpluses | Occurs above equilibrium Qs>Qd |
| Demand Curve Shifts Right Vs Left When... | Right= demand increases, supply doesn't change Left= demand decreases, supply doesn't change |
| Supply Curve Shifts Rights Vs Left When... | Right= supply increases, demand doesn't change Left= supply decrease, demand doesn't change |
| Elasticity | A measure in the responsiveness of buyers and sellers to changes in price or income |
| Elastic Vs. Inelastic | Elastic= Demand condition where consumers are responsive to price changes Inelastic= Demand condition where consumers are unresponsive to price changes |
| Total Revenue (TR) | The amount a firm receives from the sale of a good |
| Total Cost (TC) | the amount a firm spends to produce a good Explicit and Implicit Costs |
| Profit Vs. Loss | TR>TC TR<TC |
| Explicit Cost | tangible out of pocket expenses that must be payed |
| Implicit Cost | Opportunity costs of using already owned resources |
| Accounting Profit | Total Revenue- Explicit Costs |
| Economic Profit | Total Revenue- (Explicit + Implicit Costs) |
| Variable Costs | Costs that change as the rate of output (production) changes |
| Fixed Costs | Costs that do not change as the rate of output (production) changes. They are unavoidable and aren't impacted by production levels |
| Marginal Thinking | Decisions about how much to do something |
| Productions Factors | the inputs used in the production process |
| Inputs | Land (Ld), Labor (L), and Capital (K) |
| Variable Inputs | Inputs that can be changed quickly to decrease/increase output |
| Fixed Inputs | Inputs that can't be changed |
| Marginal Product | Change in output divided by the change in one additional input unit |
| Diminishing Marginal Product | Assuming capital is fixed, we eventually get to the point where a new worker adds less output than the previous worker |
| The Profit Maximizing Rule | Profit is maximized so that marginal revenue is equal to marginal cost MR=MC |
| Marginal Cost | increase in cost resulting from producing one more unit |
| Marginal Revenue | additional revenue gained by producing (selling) one more unit of output |
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