econ 101 final exam Flashcards
(166 cards)
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🎒 Flashcards (Definitions)
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- Scarcity and Opportunity Cost
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- Scarcity: Limited resources vs. unlimited wants.
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- Opportunity Cost: Value of the next best alternative.
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- Trade-off: Giving up one thing for another.
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- PPF: Graph showing trade-offs and opportunity costs.
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- Efficient Point: On the PPF.
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- Inefficient Point: Inside the PPF.
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- Unattainable Point: Outside the PPF.
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- Gains from Trade
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- Absolute Advantage: Producing more with the same input.
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- Comparative Advantage: Producing at lower opportunity cost.
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- Specialization: Focusing on comparative advantage.
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- Mutually Beneficial Trade: Trade where both parties gain.
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- Demand and Supply
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- Demand: Quantity consumers will buy at various prices.
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- Law of Demand: As price rises
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quantity demanded falls.
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- Supply: Quantity producers will sell at various prices.
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- Law of Supply: As price rises
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quantity supplied increases.
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- Determinants: Factors that shift demand/supply curves.
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- Equilibrium
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- Equilibrium Price/Quantity: Where Qd = Qs.
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- Surplus: Qs > Qd.
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- Shortage: Qd > Qs.
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5. Policy and Welfare
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* Price Ceiling: Max legal price.
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* Price Floor: Min legal price.
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* Consumer Surplus: WTP - Price.
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* Producer Surplus: Price - Cost.
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* Deadweight Loss (DWL): Loss from inefficiency.
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* Tax Incidence: Distribution of tax burden.
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6. Producer Theory (Part 1)
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* Inputs: Labor
land
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* Production Function: Output = f(inputs).
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* Marginal Product: ∆Output / ∆Input.
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* Diminishing Returns: MP declines as input increases.
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7. Producer Theory (Part 2)
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* Short Run: At least one input is fixed.
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* Long Run: All inputs are variable.
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* Total Cost (TC) = FC + VC.
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* Average Costs: AFC
AVC
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* Marginal Cost: ∆TC/∆Q.
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* Economies of Scale: ATC falls as Q rises.
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8. General Equilibrium and Efficiency
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* General Equilibrium: All markets in balance.
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* Pareto Efficiency: No one can be made better off without hurting another.
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* 1st Welfare Theorem: Competitive equilibrium is efficient.
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* 2nd Welfare Theorem: Any efficient outcome can be achieved with redistribution.
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9. Competition Efficiency
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* Allocative Efficiency: P = MC.
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* Productive Efficiency: Minimum ATC.
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* Dynamic Efficiency: Innovation over time.
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10. Monopoly
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* Monopoly: One seller.
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* Market Power: Price > MC.
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* Markup Rule: P = [ε/(ε-1)] x MC.
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* Natural Monopoly: ATC falls over wide output range.
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11. Comparing Market Structures
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* Perfect Competition: Many firms
no market power
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* Monopoly: One firm
DWL
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* Oligopoly: Few firms
products may be identical or differentiated
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Assumptions that must be true to have a competitive market:
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1. Firms want to maximize profits (Behavioral economics)
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2. Large numbers of buyers and sellers
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3. Homogeneous products (Industrial Organizations)
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4. Free entry and exit
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5. Perfect information (All over microeconomics
health economics
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6. No externalities (Environmental economics
public economics)
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12. Monopolistic Competition
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* Differentiated Products.
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* Free Entry: Zero profit in LR.
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* Excess Capacity: Under-use of resources.
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13. Game Theory
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* Nash Equilibrium: No incentive to deviate.
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* Dominant Strategy: Best regardless of others.
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* Prisoner's Dilemma: Self-interest leads to worse outcome.
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* Repeated Game: Strategies influenced by future rounds.
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14. Asymmetric Information
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* Adverse Selection: Hidden info pre-contract. (the car-dealer knows more about the car than the person buying it)
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* Moral Hazard: Hidden actions post-contract. (ex: a person with insurance more likely to get into a car accident)
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* Signaling: Informed party reveals info.
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* Screening: Uninformed party seeks info.
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15. Consumer Theory
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1. Budget Constraint
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* Budget Line: All combinations of goods a consumer can afford.
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* Budget Equation: PxX+PyY=IP_xX + P_yY = IPxX+PyY=I.
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* Slope: −Px/Py-P_x/P_y−Px/Py
shows trade-off between goods.
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* Income Effect: Change in quantity demanded from income change.
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* Price Change: Rotates the budget line.
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2. Preferences and Indifference Curves
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* Indifference Curve: All combinations of goods giving the same satisfaction.
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* Properties: Downward sloping
convex
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* Higher Curve: More preferred bundle.
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3. Marginal Rate of Substitution (MRS)
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* Definition: Rate at which consumer is willing to trade good X for Y.
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* Formula: MRS=MUx/MUyMRS = MU_x / MU_yMRS=MUx/MUy.
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* Diminishing MRS: As you consume more X
you're willing to give up less Y.
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4. Utility and Utility Functions
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* Utility: Measure of satisfaction.
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* Total Utility: Total satisfaction from consumption.
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* Marginal Utility: Extra satisfaction from one more unit.
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* Ordinal vs. Cardinal Utility: Rank vs. assign values to preferences.
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5. Optimal Choice
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* Utility Maximization: Where indifference curve is tangent to budget line.
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* Condition: MRS=Px/PyMRS = P_x/P_yMRS=Px/Py.
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* Corner Solution: When optimal choice is on an axis (e.g.
all of one good).
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6. Income and Substitution Effects
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* Substitution Effect: Change in Qd from price change
holding utility constant.
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* Income Effect: Change in Qd from effective income change.
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* Normal Good: Income ↑ ⇒ Demand ↑
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* Inferior Good: Income ↑ ⇒ Demand ↓
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7. Engel and Demand Curves
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* Engel Curve: Shows income vs. quantity demanded.
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* Individual Demand Curve: Shows price vs. quantity demanded.
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* Law of Demand: Price ↑ ⇒ Quantity ↓
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15. Externalities and Public Goods
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* Externality: Side effect on third party.
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* Pigouvian Tax/Subsidy: Corrective measure.
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* Public Good: Non-rival
non-excludable.
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* Free Rider Problem: People avoid paying.
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* Tragedy of the Commons: Overuse of shared resources.
