58 terms

Econ Final Exam Study Guide

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