Econ Final Exam Study Guide

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Study guide for Professor Bill Lee's Final Exam

The Economizing problem

The need to make choices because economic wants exceed economic means

Resource Categories

Land, Labor, Capital, Entrepreneurial Ability

Land

Land includes all natural resources ("Gifts of Nature") used in hte production process. These include
forests, mineral and oil deposits, water resources, wind power, sunlight, and arable land.

Labor

This consists of the physical actions and mental activities that people contribute to the production of goods and services. The work-related activities of a l logger, retail clerk, machinist, teacher, professional football player...

Capital

This includes all manufacture aids used in producing consumer goods and services. Included are all factory, storage, transportation, and distribution facilities, as well as tools and machinery.

Entrepreneurial Ability

1. The Entrepreneur takes the initiative in combining the resources of land, labor, and capital to produce a good or a service.
2. The entrepreneur makes the strategic business decisions that set the source of an enterprise
3. The Entrepreneur innovates. He or she commercializes new products, new production techniques, or even new forms of business organization
4. The entrepreneur bears risk. Innovation is risky, as nearly all new products and ideas are subject to failure or success.

Production Possibilities Curve pg 10

This displays the different combinations of goods and services that society can produce in a fully employed economy, assuming a fixed availability of supplies of resources and fixed technology.
PAGE 10!

How to achieve optimal output

MB = MC

Rationing Function of Prices

The ability of the competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent

Demand changes because of

Fluctuations in consumer tastes or incomes changes in consumer expectations, or variations in the prices of related goods.

Supply changes because of

changes in resources prices, technology, or taxes.

If Demand changes but supply is constant what affect does it have on the equilibrium price

An increase in demand raises both equilibrium prices and quantity. and vice versa

If Supply Changes and demand is constant what affect does it have on the equilibrium price

The new intersection of supply and demand is located at a lower equilibrium price but at a higher equilibrium quantity.

IF demand increases

Prices goes up
Quantity goes up

IF demand decreases

Prices goes down
Quantity goes down

IF Supply increases

Prices goes down
Quantity goes up

If Supply decreases

Prices goes up
Quantity goes down

changes in demand and supply

production possibilities curve

Determinants of demand

1. Consumers tastes
2. the number of buyers in the market
3. consumers' incomes
4. the prices of related goods
5. consumer expectations

Change in demand

a shift of the demand curve to the right (is an increase) and to the left (is a decrease).

Change in quantity demanded

a movement from one point to another point---from one price-quantity combination to another-- on a fixed demand curve.
-it is caused by an increase or decrease in the price of hte product under consideration.

Determinants of supply

1. resource prices
2. technology
3. taxes and subsidies
4. prices of other goods
5. producer expectations
6. the number of sellers in the market

change in supply

means the change in the schedule and a shift of the curve. AN increase in supply shifts the curve to the right and vice versa

change in quantity supplied

is a movement from one point to another on a fixed supply curve.

Equilibrium price

the price where the intentions of buyers and sellers match. It is the price where quantity demanded equals quantity supplied

A surplus

having too much of a product that is unsold

Shortage

having too little of a product. where quantity demanded exceeds quantity supplied

here is the graph

who is the most underpaid people in the world

teachers, police officers, mother teresa.... michael jordan

Resource demand as a derived demand

The demand for a resource is derived from the demand for the products that the resource helps to produce

Significance of Resource Pricing (pg 247)

1. Money Income Determination:
2. Cost Minimizing
3. Resource Allocation
4. Policy Issues

Marginal Revenue Product

Change in total revenue /
Unit change in resources quantity

Change in total revenue /
Change in labor

this is the additional total revenue , the first number is how much 1 worker will make and it should be the same as the first total revenue number

Marginal Resource Cost

Change in total (resource) cost /
Unit change in resource quantity

Resource Demand

is a derived demand, and the demand for the products is derived from the demand that the workers produce
-Depends both on how valuable the product or service is to the market and how well the worker does on the job

Resource Supply

...

Profit Maximization for resources

MRP=MRC

Marginal Product Definition

additional output, resulting form each additional unit of labor

how to get total revenue

multiple the total product across time the product price

Marginal Revenue Product

How much additional revenue firm makes when it hires 1 more worker

marginal product times the product price

if Wage rate < MRP

Hire more workers

If wage rate is > MRP then

hire fewer

Market System

Private ownership of resources and the use of markets and prices to coordinate and direct economic activity

Break Even Point

an out put at which a firm makes a normal profit but not an economic profit.

Profit

P(Product Price/MR) - ATC) * Units of output (Q)

Long Run

In a long run industry, its individual firms can undertake all desired resource adjustments. That is, they can change the amount of all inputs used

Short Run

...

Fixed Costs

those costs that do not vary with changes in output.

Variable Costs

Those costs that change with the level of output

Total Cost

Sum of the fixed and variable costs

Average Fixed Cost (AFC)

TFC / Q (total product)

Average Variable Cost (AVC)

AVC = TVC / Q

Average Total Cost =

ATC = TC / Q

Marginal Cost

Change in the TC / Change in Q

Pure Competition

Involves a very large number of firms producing a standardized product (that is a product like cotton for which each producer's output is virtually identical to that of every other product

Pure Monopoly

A market structure in which one firm is the sole seller of a product or service (for example, a local electric utility.)

Monopolistic competition

Characterized by relively large number of seller producing differentiated products (clothing, furniture, books).

Oligopoly

Involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals.

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