43 terms

Econonmics Exam 1

STUDY
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Economics
The study of choice under conditons of scarcity
Microeconomics
Is the branch of economics that focus on the choices made by the household and firms and the effects those choices have on a particular market
Macroeconomics
Is concerned with the OVERALL performance of the economy
Scarcity
There is not enough
Factors of Production
Natural Resources - Land , raw materials
Human Resources - workers
Capital Resources- Tools
Entreprenperships - Creators
Opportunity Cost
The value of what is being given up (supply line)
Production Possiblities Curve
Illustrates graphilly the maxium combination of two good that the economy can produce, given availibilties of resources, It is also represented by a downward sloping because of the problem of scarcity. Resources of land labor, capital and entreprenship
The basic economic questions
What are we going to produce?
How much are we going to produce?
How do we produce it ?
Who gets the benifits of production?
Econmics Santions
are government-imposed limitations or complete bans, placed on customary trade or finanical relations between nations
Econmic Systems
Market System (capitalism)
Mixed System (Socialsim )
Command System (communism)
Marginal Benifits
Refers to PRODUCING One More unit
Marginal Cost
Is what is COST to society to produce One More unit
Demand
Is the schedule that shows the ammount of a good or service that a buyer is willing and able to purchase at each possible price dueing a particular period of time.
The amount of product demanded depends on
Price of the product
Prices of related products
Consumer income
Expectation of the future price changes
Consumer Tastes
Number of Consumers
Positive Economics
Deals with the way the economy works , it answers questions such as why do scientist make more than janitors
Normative Economics
Involves value Judgement that cannont be tested empirically. Answers such questions as should welfare payments be reduced in order to encourage the unemployed to find jobs.
Law of Demand
as price goes up quainity goes down or as price goes down quanity goes up. High Quanity = Low Price High Price = Low Quanity
Change in quantity demanded
is a movement along the demand curve rather than a shift in the demand curve
Substitute Effect
The price falls relative to the price of all other similar goods .
Direct Substitution
Direct relationship between quanity and price.
Q of apples goes up the Price of oranges goes up
Indirect Compliments
The indirect relationship between quainty and price . Quainty of coffee goes up but the price of Sugar goes down.
Income Effect
A decrease in price results in an increase in the purchasing power of consumers .
Diminshing Marginal Utility
Satisfaction as a person consumes additional units of a good each unit purchased after that is less and less valuable
Reasons for Shifts in Demand
Consumer tast
Rise in income or change in income
Substitute good price increases
Future prices/ expectations
Demand increases due to population
Shift in Demand
Goes to the LEFT if Demand Decrease and Goes to the RIGHt if Demand Increase
Supply
is a schedule showing the ammounts of a good or service that a consumer is willing and able to sell at each possible price
Supply Line
goes UPWARD becaused more resources are going up.
Reasons for Shift in Supply
Resouce Prices (raw materials)
Technology (incearse effiency)
Price of other goods (substitute)
Expected future prices
Taxes and subsidies (government)
Number of Suppliers
Opportunity Cost
is EQUAL to the SUPPLY Line it is what you are giving up to get something else (i.e buying land for a house the more land you use the less you have left in supply)
Market Equilibruim
Quanity at which and item is produced , Quainity between buyers and sellers is agreeed upon at a set price.
Equilibrum Price
The price that the buyers and sellers agree on at a certain quanity that is availible. Point where Supply and Demand meet.
Surplus
The amount by which the quanity supplied EXCEEDS the quanity demanded.
Shortage
The amount by which the quanity demanded EXCEEDS the quanity supplied.
Price Elasticity of Demand
Measures how responsive, buyers are to a change in price.
Elastic Goods
Are Luxuary items, the most elastic point is at the top of the demand line
Inelastic Goods
Are Necessary Items , i.e medical insurance, The most INELASTIC point is at the bottton of the demand curve
Determinate of Price Elasticiy of Demand
Necessicty Vs. Luxury
Availiblity of Substitutes
Proportion of Income
Time
Total Revenue on the Demand curve
shows the effect of elasticity
Total Revenue is calulated
Price X's Quantity on the DEMAND line
Price Ceiling
The establishment of a maxium legal price a seller may charge for a product (rent control)
Ceiling
is when the market price is below the market equilibrium creating a shortage in supply
Price Floor
is established to prevent prices from falling below the legally mandated level
Floor
is when the market price is set above the market equilibrum, creating a surplus in supply between the Demand line and supply line.