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70 Cards in this Set
- Front
- Back
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elasticity |
>1 |
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inelastic |
<1 |
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demand |
the amount consumers are willing and able to buy at any price for a given item. |
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What is Economics? |
The study of the allocation of our scarce resources |
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Resources are the instruments used to... |
produce goods and services; natural and other resources |
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Factors of prodction |
Land, labour, capital, natural resources, entrepreneurship |
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scarcity |
a situation in which there is not enough of something to go around to satisfy the desire for it
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capital |
physical capital: machines, tools, factories
human capital: skills/knowledge of labour force
Financial: stocks bonds cash |
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how are scare resources allocated in modern economics? |
- markets (free market economy) - governments (centrally planned economy) -combo of both: a 'mixed' economy
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Cheng sei weii |
socialist market system-- didn't know what a stock was
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positive economics |
"what is" |
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normative
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"What ought to be"
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Marginal |
a change in a dependent variable caused by the one unit incremental increase in an independent variable
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marginal cost |
the change in total cost brought about by one unit increase in output
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marginal revenue |
the change in total revenue brought about by a one unit increase in output
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Diminishing returns |
as firms increase an input by one more unit (with all other inputs constant) totally output will increase, but by a decreasing amount each time
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ceteris paribus
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holding all other things equal |
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Because of -------, every economic decisions involves----- |
scarcity, tradeoffs
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Each decision you make involves a -----, these are all ------. |
trade off cost, opportunity cost
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opportunity cost |
the value of the best foregone alternative of any decisions
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PPF:
Given: A PPF curve is a diagram which shoes the various combinations of ---- that would be possible ----- in a specific period of time |
outputs, if all the factors of production were fully utilized |
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what will shift the PPF? |
levels of any of the FOPS or technology |
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Most efficient location on PPF? |
anywhere on the line |
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Comparative advantage: |
the ability to produce a good or service at a lower O.C than other producers |
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Ricardian trade theory |
If there are two trading partners with different OC (hence comparative advantage), then there exists a ted, of trade which both parties are made at least as well off by specializing and trading with another. |
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Absolute Advantage |
the ability to produce a good or service, using fewer resources than other producers use
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Is it economically advantageous to specialize and trade? |
NO. Transportation costs transaction cost political barriers
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Reasons to oppose free trade: |
(1) clear economic losers (2) strategic or political reasons (3) social reasons- bad working conditions/environmental impact |
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Cost benefit analysis |
???? |
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The benefit of voluntary exchange |
Unless there is deception, voluntary exchange means they are at least as well off and this increases the welfare(wellbeing) of a society even if no additional goods are produced as a result of trade. |
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Principle of increasing costs |
As production of good A increases, the OC of producing one more unit of A in terms of good B generally increases-- hence bows out the PPF
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In P of IC |
factor inputs are generally not perfectly internchangebale -- decreasing returns to an input cause increasing costs |
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Definition of Demand: Given: demand is the amount.... |
PIPTE: population of buyers, income, price of related goods, tastes and preferences, expectations of future prices. ... buyers would be willing and able to buy at each of all possible prices for the product
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Quantity demaded |
the amount that buyers will be willing to buy at a specific price, over a specified period of time. |
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demand shedule |
a table showing how quantity demanded of some product during specified period of time changes as a price of the product changes,
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demand curve |
a graphical depiction of a demand schedule |
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Law of Demand |
as price of a good or service increases, the quanity demanded falls.
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Change in demand (shift in demand curve) |
Whole curve shifts when at any given price buyers would be willing and able to buy either more or less than initially. |
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What will cause a change in demand? |
NOT PRICE: any of the PIPTE items. |
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Incomes of buyers |
more 'normal' goods/servieces with increase demand with increase of income inferior goods will decrease with increase of income |
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Price of salted goods |
increase of the price of subsitutes=increase in price of item
increase of price of compliemnts=decrease in price of item |
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Definition of suppy:
given:--- Supply is.... |
TIPSE: Tech, input prices, prices of related goods, sellers, expected future prices.
the amount that sellers would be willing and able at each of all possible prices for the product
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Quantity Supplied |
the amount that sellers would be willing and able to seek at a specific price over a specified period of time. |
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Supply schedule: |
a table showing how quantity suppled of some product during a specified period of time changes as a price of that product changes. |
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Supply Curve |
a graphical depiction of a supply schedule |
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Law of supply |
as the price of the good increases, the quantity supplied increases |
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Change in Supply |
At an given price, sellers are willing and able to sell either more or less than before (whole curve shifts)
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Technology |
increase in efficiency of production=increase in supply |
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Input price |
as input prices decrease, so does cost of production= increase in supply |
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Price of Related Goods in Production |
If price of substitute goes up, shift to producing substitute and thus lower the original items supply. |
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number of sellers |
more producers=more supply |
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Expected future prices (TIPSE) |
increase infuture= produce less now and more later |
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Equilibrium |
situation in which neither buyers no sellers have an incentive to change their behavior |
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Price ceiling |
a legal maximum on price that may be charged for a commodity |
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Price floor |
a legal minimum on price that may be charged for a commodity |
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Implications of Price Cieling |
(1) constant shortages (2) black markets (3) black markets prices may actually exceed original prices (4) blackmarket sellers make profit not producer (5) investment in industry dries up |
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Implications of Price Floors |
(1) persistent surplus (2) black markets for wages (3) disguised discounts (4) disposal of inventory problem (5) over-investment in industry
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non-binding |
not above or below the equilibirum
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Elasticity |
The % change in one economic variable in response to a 1% increase in another economic variable, where the variable doing the causing is the denominator.
CHANGES AT VARIOUS POINTS OF GRAPH |
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elastic |
mores sensitive/ responsive, to price |
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Price elasticity of Demand |
sensitivity of quantity demande to a 1% change in price |
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Arc elasticity |
Q2-Q1 x P1+P2 ----------- ------------- P2-P1 Q1+Q2 |
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What affects price elasticity of demand? |
(1) availability of substitutes (2) narrowness of market (3) type of good- luxury or necessity (4) time between purchase and consumption of good (5) proportion go total income |
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Income elasticity if demand |
the responsiveness of demand for the product to a 1% change in income |
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normal good |
necessity vs luxury |
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inferior good |
????? |
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Total revenue |
Price x Quantity |
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Percent change in total revenue |
perc. change in price plus perch change in quantity |
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Cross price elasticity |
sensitivity of a quantity demand of a good Y to a 1% change in price of good X.
perc . change Qy ---------------- per. change Q x |
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CP elasticity range |
Positive= sub 0= unreltaed negative= complements |
