Econ200 Final Exam Study Guide

Front 1

Market Demand Schedule

Back 1

Table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy.

Front 2

Market Demand Curve

Back 2

Downward sloping line relating price and quantity demanded.

Front 3

Law of Demand

Back 3

Other things equal, when the price of a good increases, the quantity demanded of that good decreases, and when the price falls, the quantity demanded increases.

Front 4

Normal Goods

Back 4

If demand for good falls when income falls.

Front 5

Inferior Goods

Back 5

If demand for a good rises when income falls.

Front 6

Complements

Back 6

When a fall in price raises the demand for another good.

Front 7

Substitutes

Back 7

When a fall in price of one good reduced the demand for another good.

Front 8

Tastes

Back 8

What makes people tick. Ex: If you have a tase for ice cream, you will buy more ice cream.

Front 9

Market Supply Schedule

Back 9

A table that shows the relationship between price and quantity supplied.

Front 10

Market Supply Curve

Back 10

Curve relating price and quantity supplied.

Front 11

Law of Supply

Back 11

Other things equal, when the price of a good rises, the quantity supplied of the good also rises. When price falls, quantity supplied falls.

Front 12

Input Prices

Back 12

Price of inputs that go into making a good. If input prices rise substantially, a firm might shut down and produce none of the good at all.

Front 13

Technology

Back 13

Technology for turning inputs into goods is also a determinant of supply. For example, if a firm expects the price of a good to increase in the future, they wont supply as much into the market today, and put more into storage.

Front 14

Equilibrium Price

Back 14

Price that balances quantity supplied and quantity demanded.

Front 15

Equilibrium Quantity

Back 15

The quantity supplied and quantity demanded at the equilibrium price.

Front 16

Excess Supply

Back 16

Surplus of a good.

Front 17

Excess Demand

Back 17

Shortage of a good.

Front 18

Impact of a Change in Demand

Back 18

Higher demand for good leads to a higher equilibrium price and a higher equilibrium quantity sold.

Front 19

Impact of a Change in Supply

Back 19

Reduction in supply of a good leads to a higher equilibrium price and a lower equilibrium quantity sold.

Front 20

Impact of a Change in both Supply and Demand

Back 20

Two outcomes are possible:
1. The equilibrium price rises, and equilibrium quantity rises too (occurs when demand increases alot and supply decreases a little.)
2. Equilibrium prices increases and equilibrium quantity decreases (occurs when supply decreases alot and demand increases a little).

Front 21

No Change in Demand and No Change in Supply

Back 21

P same, Q same

Front 22

No Change in Demand and Increase in Supply

Back 22

P down, Q up

Front 23

No Change in Demand and Decrease in Supply

Back 23

P up, Q down

Front 24

An Increase in Demand and Increase in Supply

Back 24

P ambiguous, Q up

Front 25

Decrease in Demand, Decrease in Supply

Back 25

P ambiguous, Q down.

Front 26

Decrease in Demand, Increase in Supply

Back 26

P down, Q ambiguous

Front 27

Elasticity of Demand

Back 27

Measures how much the quantity demanded responds to a change in price.

Front 28

Elastic Demand

Back 28

Quantity demanded responds substantially to a change in price.

Front 29

Inelastic Demand

Back 29

Quantity demanded responds only slightly to a change in price.

Front 30

Unit Elastic Demand

Back 30

Quantity demanded responds in a ratio of 1 to an increase in price. (Price increases 2 units, demand increases 2 units)

Front 31

Calculating Price Elasticity of Demand

Back 31

Price elasticity of demand =
% change in quantity demanded / % change in price

Front 32

Cross Price Elasticity

Back 32

A measure of how much a quantity demanded of one good responds to a change in the price of another good.

Front 33

Income Elasticity of Demand

Back 33

A measure of how quantity demanded is affected by a change in the consumer's income.

Front 34

Elasticity of Supply

Back 34

A measure of how much quantity supplied is affected by the change in price of a good.

Front 35

Welfare Economics

Back 35

The study of how the allocation of resources affects economic wellbeing.

Front 36

Willingness to Pay

Back 36

The maximum amount that a buyer will pay for a good.

Front 37

Consumer Surplus

Back 37

The amount a buyer is willing to pay for a good minus the amount they actually pay.

Front 38

Using the Demand Curve to Measure Consumer Surplus

Back 38

Consumer surplus is closely related to the demand curve for a product. Because a demand curve shows buyers willingness to pay, we can also use it to determine consumer surplus.

Front 39

Producer Surplus

Back 39

The amount a seller is paid for a good minus the sellers cost of providing it.

Front 40

Efficiency

Back 40

If an allocation of resources maximizes total surplus.

Front 41

Fairness/Equity

Back 41

The property of distributing economic prosperity uniformly among the members of society.

Front 42

Adam Smith's Invisible Hand

Back 42

The notion that of the advocacy of free markets; free markets are the best way to organize economic activity.

Front 43

Price Floors

Back 43

A legal minimum on the price at which a good can be sold.

Front 44

Price Ceilings

Back 44

A legal maximum on the price at which a good can be sold.

Front 45

Tax Incidence

Back 45

The manner in which the burden of a tax is shared among participants in a market.

Front 46

Deadweight Loss

Back 46

The cost of distortions that are introduced by a tax.

Front 47

Externalities

Back 47

The uncompensated impact of one person's actions on the wellbeing of a bystander.

Front 48

Positive Externalities

Back 48

Externalities that benefit the bystander.

Front 49

Negative Externalities

Back 49

Externalities that do not benefit the bystander.

Front 50

Excludability

Back 50

The property of a good whereby a person can be prevented from using it.

Front 51

Rivalness

Back 51

The property of a good whereby one person's use diminishes the other person's use.

Front 52

Public Goods

Back 52

Goods that are neither excludable or rival in consumption.

Front 53

Example of a public good

Back 53

National defense

Front 54

Free Rider

Back 54

A person who receives the benefit of a good but does not pay for it.

Front 55

Free Rider Problem

Back 55

Free Rider problem prevents the private market from supplying them.

Front 56

Common Resources

Back 56

Rival but not excludable.

Front 57

Example of Common Resource

Back 57

Congested Road with no toll.

Front 58

The Equilibrium Without International Trade

Back 58

When an economy cannot trade in world markets, the price adjusts to balance domestic supply and demand.

Front 59

Consumer and Producer Surplus with No Trade

Back 59

Sum of CS and PS would measure the total benefits that buyers and sellers receive from participating in the textile market.

Front 60

World Price

Back 60

The price prevailing in world markets.

Front 61

World Price Below Domestic Price

Back 61

Will result in country importing goods.

Front 62

Consumer Surplus when Country Imports

Back 62

Increases

Front 63

Producer Surplus when Country Imports

Back 63

Decreases

Front 64

Gains from Trade

Back 64

The amount that the total surplus increases because of trade.

Front 65

Production Possibilities Frontier

Back 65

Shows the various mixes of output that an economy can produce.

Front 66

Opportunity Cost

Back 66

What we give up to get an item.

Front 67

Absolute Advantage

Back 67

The ability to produce goods using fewer inputs that another producer.

Front 68

Comparative Advantage

Back 68

The ability to produce goods at a lower opportunity cost than another producer.

Front 69

Comparative Advantage, Specialization, and Gains from Trade

Back 69

Trade can benefit everyone in society because it allows people to specialize in activities which they have a comparative advantage.

Front 70

Budget Constraint

Back 70

The limit on the consumption bundles that a consumer can afford.

Front 71

Shifts of the Budget Constraint

Back 71

Budget constraint will alter based on changes in income and changes in price of the goods.

Front 72

Expected Value

Back 72

The average value of an event based on repeating the situation several times.

Front 73

Risk Averse

Back 73

Preferring a less risky income, holding fixed its expected value.

Front 74

Risk Neutral

Back 74

Does not care about risk, only cares about expected wealth.

Front 75

When to buy insurance

Back 75

When the insurance policy is only a little unfair, and you are very risk averse.

Front 76

When not to buy insurance

Back 76

When the insurance policy is very unfair, and you are not risk averse, or only a little risk averse.

Front 77

Asymmetric Information

Back 77

One side of an economic relationship has better information than the other.

Front 78

Hidden Characteristics

Back 78

Things that one side of a transaction know; the other side would like to know too but doesn't.

Front 79

Signaling

Back 79

Action taken by an informed party to reveal private information to an uninformed party.

Front 80

Screening

Back 80

Action taken by uninformed party to persuade informed party to give private information.

Front 81

Hidden Actions

Back 81

Actions taken by one side of a relationship that the other side cannot observe.

Front 82

Moral Hazard

Back 82

The tendency of a person who is not properly monitored to engage in immoral and dishonest behavior.

Front 83

Competitive Markets

Back 83

-Many small firms.

Front 84

Sunk Cost

Back 84

A cost that has already been committed and cannot be recovered.

Front 85

Firm Will Shut Down If...

Back 85

Total Revenue < Variable Cost
TR/Q < VC/Q
P<AVC

Front 86

Firm will Exit Market if...

Back 86

Total Revenue < Total Cost
P < ATC

Front 87

Firm will enter market if...

Back 87

P > ATC

Front 88

Marginal Revenue

Back 88

New Price + (Change in Price * Old Quantity)