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macro exam 1
Terms in this set (87)
What is scarcity?
there isn't an infinite amount
What is choice?
we have to choose somethings because we cannot choose everything
What is opportunity cost?
the value of the best thing given up
What is rational self interest?
it is useful and often true
What is economics?
the study of how people respond to incentives
What is tradeoffs?
a decision that weighs one thing against another
What are models?
simplified views of the world
What is ceteris paribus?
other things equal, or other things the same
What is positive economics?
the way the world is
What is normative economics?
the way the world ought to be
What does a voluntary exchange create?
What is the production possibilities frontier?
a curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors. The PPF assumes that all inputs are used efficiently.
What is the law of demand?
as the price of a good rises, the quantity demanded falls
What factors does demand depend on?
quality, weather, circumstances
What is consumer surplus?
the difference between what a consumer is willing to pay and what they actually pay
What does the height of the demand curve represent?
willingness to pay, or the value placed upon that unit of good
What is a diminishing marginal utility?
falling additional good (has less value as there are more)
What is market demand?
horizontal sum of individual demand curves
How can you tell the marginal cost of a unit or opportunity cost?
the height of the supply curve at a particular unit of output
What is producer surplus?
the difference between what a producer is paid and the marginal cost
What is market supply?
the horizontal sum of individual firm's supply curves
How can you tell there is a shift in the supply curve?
change in quantity or horizontal axis
What way does the supply curve shift if it is an increase?
What way does the supply curve shift if it is a decrease?
What 6 things can shift the supply curve?
1. changes in input prices (resources). 2. taxes, and regulation, and subsidies. 3. entry or exit of firms. 4. changes in technology. 5. changes in expectations and information. 6. acts of nature, war, etc.
What 7 things can change the demand curve?
1. changes in quality or info. 2. changes in income. 3. changes in prices of substitutes and complements. 4. natural disasters and other events. 5. changes in expectations. 6. changes in tastes and preferences. 7. changes in demographics
What is a normal good?
as income rises, demand for those goods rise
What is an inferior good?
as income rises, demand for these goods fall
What is a substitute?
window PC for a mac
What is a compliment?
chocolate syrup and milk
What shifts the demand curve to the right?
people buy more at every price (quantity of people is less)
What shifts the demand curve to the left?
people buy less at every price (quantity of people is more)
What changes quantity demanded/supplied but not demand/supply?
If price goes down, what happens to quantity demanded?
If price goes up, what happens to quantity demanded?
If price goes down, what happens to quantity supplied?
If price goes up, what happens to quantity supplied?
What is the law of supply?
as price rises, quantity supply rises
What is equilibrium?
1. a resting place 2. place where two forces merge
At equilibrium, are supply and demand equal to each other?
At equilibrium, are quantity supply and quantity demand equal to each other?
What happens if the price is above the equilibrium price?
there is surplus because people aren't going to buy it if it is more expensive then it should b
What happens if the price is below the equilibrium price?
there is shortage from selling out of the good so therefore stores would raise prices
Is equilibrium efficient?
What is economic efficiency?
there is no reallocation of goods and resources that has benefits greater than costs (if there is no way to make total surplus bigger, you've got efficiency)
What is total surplus?
consumer and producer surplus together
What is another word for marginal benefit?
demand or marginal cost
What happens when both supply and demand shift?
either price or quantity (but not both) will be indeterminate
How is demand considered elastic?
if the quanity demanded changes a lot when price changes
How is demand considered inelastic?
if the quantity demanded does not change much when price changes
What kind of goods have elastic demand usually?
goods with substitutes
How is supply considered elastic?
if quantity supplied changes a lot when price changes
How is supply considered inelastic?
if quantity supplied does not change a lot when price changes
What kind of good have inelastic supply usually?
goods for which it is difficult for the producer to greatly increase or decrease production
Graphically, what does an inelastic graph look like generally ?
Graphically, what does an elastic graph look like generally?
What effects supply and demand with elasticity?
supply and demand become more elastic as time passes
What are price controls?
government imposed restrictions on market prices
What is a price ceiling?
a max legal price
What is a price floor?
a minimum legal price
What does a non- binding price floor or ceiling mean?
it is efficient
Is there something you could do that would create benefits that are larger than costs?
allow price to return to equilibrium
What is dead weight loss?
lost consumer and producer surplus
What overrules market price?
price controls unless they're non binding
What do binding price ceilings create (below equilibrium) ?
What do binding price floors create (above equilibrium) ?
Are price controls efficient?
What are other unintended consequences from price controls?
encourage the use of black markets to reach equilibrium price, encourage landlords to search for extra fees to tack on, discourage new housing from being built, discourage landlords from maintaining buildings, and even eventually abandonment causing blight, make it easier for bigoted landlords to discriminate
What are some effects of minimum wages?
1. business cant easily lay off workers now, but can refrain from hiring in long run. 2. businesses may substitute capital for low-skill labor. 3. business may substitute high skill labor for low-skill labor. 4. businesses may raise prices due to increasing costs
Who does tax harm?
producer and consumer
Who has the burden of the tax?
What is the tragedy of the commons?
when a resource is owned in common, it tends to be overused
What is an example of tragedy of the commons?
ranchers using one field to graze cattle because no one uses but now everyone uses it. public restrooms. fisheries.
What is the tragedy of the anticommons?
when there are too many people with the power to say no to the use of a resource
What is an example of the anticommons?
patent trolls and patent thickets, Russian shopping malls
What are information problems?
when one party to a transaction has trouble finding the truth
What is an example of information problems?
used car sales, education signalling
What is the public interest view of government?
government effectively transforms vator preferences into beneficial policy action
What is the public choice view of government?
government is made up of rationally self interested individuals acting within a system of incentives created by laws and norms (economist view)
What are voters?
voting for the candidates who promise them policies they like
Does your vote matter?
What is rational ignorance?
when you don't know about something because it doesn't benefit you. effects the way you vote because may not benefit you because your marginal cost is greater than the marginal benefit.
What is rational abstention?
people choosing not to vote because their marginal cost is greater than their marginal benefit
What is a market failure?
people pursuing their self interest lands to an outcome that is collectively irrational, or inefficient
What are positive externalities?
a benefit that is enjoyed by a third-party as a result of an economic transaction. Third-parties include any individual, organisation, property owner, or resource that is indirectly affected. (good house maintenance or vaccines)
What are negative externalities?
a cost that is suffered by a third party as a result of an economic transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include any individual, organisation, property owner, or resource that is indirectly affected. (pollution)
What are externalities?
occur when one persons actions affect a third party
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