Chapters 1-8 Flashcards
(99 cards)
1
Q
What is scarcity?
A
What we want, we cannot always have. We need to make choices based on this.
2
Q
What is economics?
A
The study of how people make choices
3
Q
What is a model?
A
A simplified version of reality
4
Q
What are the three key economic ideas?
A
- People are rational
- People respond to economic incentives
- Optimal decisions are made at the margin
5
Q
What are the three key economic questions?
A
- What is produced?
- How is it produced?
- Who gets it?
6
Q
What is it called when the market answers the key economic questions?
A
Market economy
7
Q
What is it called when the government answers the key economic questions?
A
Centrally planned economy
8
Q
What is the difference between positive and normative?
A
Positive statements are about fact, normative statements are opinion
9
Q
What is the benefit of a market economy?
A
It is more efficient
10
Q
What is the benefit of a centrally planned economy?
A
It is more equitable
11
Q
What does efficient mean?
A
Using all the resources in your possession
12
Q
What does equitable mean?
A
Everyone has the same amount of things
13
Q
What is a PPF?
A
A positive analysis that shows us a set of resources and two goods we are producing
14
Q
How is it possible to get out of a PPF?
A
- Extra resources
- New technology
- Trade
15
Q
What is opportunity cost?
A
What you give up in order to gain another. 1 of good x = how many of good y
16
Q
What is the formula for opportunity cost?
A
1 unit of x = give up y/gain x = y
17
Q
What is an explicit cost?
A
A cost that can be measured in dollars. Ex. tuition, boarding, meal plan
18
Q
What is implicit cost?
A
The highest value alternative to what you chose to do
19
Q
What does the opportunity cost of good x equal?
A
Slope of the PPF
20
Q
What does the opportunity cost of good y equal?
A
1/slope
21
Q
Why do countries trade?
A
If one country has a lower opportunity cost than another, they trade
22
Q
What is comparative advantage?
A
When one party has a lower opportunity cost than the other
23
Q
What are exports?
A
A good you have comparative advantage in
24
Q
What is equilibrium?
A
When quantity demanded equals quantity supplied
25
What do we do with variables other than price?
We presume all else is equal
26
What is marginal benefit?
How much extra the consumer is willing to pay for a good or service
27
What is the law of demand?
As price rises, demand falls, and vice versa
28
What could shift the demand curve?
- Demographics/population change
- Income change
- Tastes
- Expected future price
- Price of related goods
29
What is marginal cost?
When producers are willing to charge less for a product than they actually do
30
What could shift the supply curve?
- Technology
- Price of inputs
- Number of firms
- Expected future prices
- Price of a substitute in production
31
What happens to the group that has the requirement to pay a tax?
Their curve will decrease by the size of the tax
32
What is a surplus?
When quantity supplied is greater than quantity demanded
33
What is a shortage?
Quantity demanded is greater than quantity supplied
34
What is allocative efficiency?
When consumer and producer preferences align
35
Is there efficiency with government intervention?
No
36
What is surplus?
The benefit of participating in a market
37
What is consumer surplus?
Benefit received by consumers for participating in markets P(willing to pay) - P(actually pay)
38
What is producer surplus?
The benefit received for participating in a market. P(keep) - MC
39
What is price setting?
When the government requires that the price be different than what is the equilibrium
40
What is a price ceiling?
When the government sets a max price producers are allowed to charge
41
What is a price floor?
When the government sets a minimum price producers are allowed to charge
42
What is the effect of price ceilings?
A shortage of the good or service
43
What happens when the government intervenes?
A black market will occur
44
What is deadweight loss?
The surplus that could have been received, but wasn't due to a lack of an equilibrium price
45
What is tax incidence?
How taxes are shared across consumers and producers
46
When do externalities exist?
When a third party is affected by the existence of the good
47
What is a positive externality?
When marginal benefits is lower than the benefit society gets from the good
48
What do we want private benefits to equal to make markets at the equilibrium price?
The social benefit
49
What are negative externalities?
When private marginal costs are lower than social marginal costs
50
How can a externality be reduced?
Money or regulations
51
What does rival mean?
If you consume the good, no one else can
52
What does excludable mean?
Consumption requires you to pay for the good.
53
What type of good is rival and excludable?
A private good
54
What type of good is non-rival and excludable?
A quasi-public good
55
What type of good is rival and non excludable?
A common resource
56
What type of good is non rival and non excludable?
A public good
57
What is the free riding problem?
When people over abuse the system.
58
What is the midpoint formula?
[Q2-Q1/{(Q2+Q1)/2}]/[P2-P1/{P2+P1/2}]
59
What is the formula for price elasticity of demand?
% change in QD/ % change in price
60
What is the formula for price elasticity of supply?
% change in QS/ %change in price
61
What is the formula for income elasticity of demand?
% change in QD/ % change in I
62
What is the formula for cross price elasticity?
% change in QDB/ % change in PA
63
When is price elasticity elastic?
When absolute value is greater than 1
64
When is price elasticity inelastic?
When absolute value is lower than one
65
When is price elasticity unit elastic?
When absolute value is equal to one
66
When is a good inferior?
When income elasticity is negative
67
When is a good a luxury?
When income elasticity is greater than one
68
When is a good a necessity?
When value is greater than zero but less than one
69
What is the formula for revenue
P x QD
70
When is a good perfectly inelastic?
When PED = 0, or demand is a vertical line
71
When is a good perfectly elastic?
When PED = infinity, or is a horizontal line
72
What determines elasticity of demand?
Amount of substitutes, amount of time passed, luxuries vs necessities, definition of the market, and share of your budget
73
What happens if you think something is going to happen?
It will happen
74
What are the parties of the three payer system in the United States?
You, the Insurance Company, and the Hospital/Healthcare providers
75
What are the three aspects of healthcare (three points of the triangle)?
Cheap, accessible, and good
76
What is asymmetric information?
When two parties in a transaction know different amounts of information
77
What is adverse selection?
When you know more and take advantage of it before the transaction
78
What is moral hazard?
When you know more information and take advantage of it after the transaction
79
What is knowing more about your health and not telling insurance companies before you get insurance and example of?
Adverse selection
80
What is taking risky actions after getting insurance an example of?
Moral hazard
81
What is the principal agent problem?
When a principal hires an agent to act on their behalf and what I want them to do, and what they do does not align
82
What is copay?
The amount insurance companies make you also pay for a procedure (reduces principal agent problem)
83
What is a stakeholder?
A person invested in a business
84
What are the three types of firms?
Sole proprietorship, partnership, and corporations
85
How do sole proprietorships and corporations raise money?
Through third parties
86
How do corporations raise money?
Through stocks
87
What is a secondary financial market?
Going through a bank to get a loan
88
What are the positives of sole proprietorships?
Control by the owner, and no layers of management
89
What are the negatives of sole proprietorships?
Unlimited personal liability and limited ability to raise funds
90
What are the positives of a partnership?
The ability to share work and risk
91
What are the negatives of a partnership?
Unlimited personal liability and limited ability to raise funds
92
What are the positives of corporations?
Limited personal liability
93
What are the negatives of corporations?
Costly to organize and possible double taxation
94
What is an IPO?
Initial public offering of stock
95
What do financial statements include?
Income statement, balance sheet, and cash flow
96
What is the principal agent problem caused by CEOs?
They may do what is good for the company now, not in the long term when they are likely gone.
97
What is a bond?
Giving money as a loan, without owning any of the company.
98
Are bonds or stocks riskier?
Stocks
99
What are profits?
Revenue - costs
