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Gabriella K. > ECON - 110 > Flashcards

ECON - 110 Flashcards

1
Q

CH. 2

A
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2
Q

Model 1 : Circular - Flow Diagram

A

two actors - households, firms
two markets- for goods & services , for “factors of production”
Households - own factors of production and sell to firms for income
Firms - buy/hire the factors of production and use it to make stuff to tell back to you

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3
Q

Factors of production

A
  • the resources the economy uses to produce goods and services
  • Labor : people
  • Land : raw materials/natural resources
  • Capital : buildings & machines used in production/ tools & tech
  • Entrepreneurship - idea
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4
Q

Model 2 : Production Possibilities Frontier (PPF)

A
  • If we have this much stuff what can we make with it
    Stuff = tech, natural resources ect.
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5
Q

4 Points of PFF & Opportunity Cost

A

Opp. Cost - what you give up to obtain something, not just money, could something like time
Moving PPF - shift of resources
Society faces trade off - SACRIFICE, if want more of one have to give up some of another
Slope - rise over run

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6
Q

PPF shapes

A

Straight line : Opp. cost is constant , resources to make A are just as good to make B
Bow : increasing Opp. cost, resources are specialized & not easily adaptable, if you want more of A then the amount of B sacrificed will increase

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7
Q

Economic Growth

A
  • additional resources/ improvement in tech = EG
  • improvement in tech ALWAYS shift PPF OUTWARD
  • EG -> more jobs -> business growing -> PPF shift OUTWARD
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8
Q

MICRO vs. MACRO

A

Micro- study of people
Macro - study of economy phenonea like inflation & unemployment

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9
Q

Positive statement Vs. Normative statement

A

Positive - A FACT
Normative - AN OPINION

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10
Q

Absolute Advantage

A
  • Adam Smith -> father of AA
  • produce a good using fewer inputs then another
  • also if A and B have the same resources but A still makes more then A has A.A.
  • A.A. is found by looking for the highest number
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11
Q

Comparative Advantage

A
  • David Ricardo -> father of C.A.
  • is related to Opp. cost
  • you aren’t #1/ the best but better then most
  • produce a good with lower opportunity cost then another producer
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12
Q

Opportunity cost

A
  • whatever is given up to obtain some item
  • measures trade off between the two goods that each producer faces
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13
Q

principle of comparative advantage

A
  • each good - produced by the individual has a small Opp. cost of producing that good
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14
Q

Rules

A
  • can have A.A. in both
  • Cannot hae C.A. in both
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15
Q

Price of trade

A
  • aka terms of trade
  • always between two opp. cost given.
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16
Q

Math lesson

A

visual notes taken
- denominator is what you are trying to find the opp cost of
- top is the other number
- must calculate for every tiem of every country so if you have 2 counties with 2 items there will be four equations

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17
Q

Demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

18
Q

shift in demand

A
19
Q

Market demand + individual

A
20
Q

Supply curve shifters : # of sellers

A

increase in # of sellers then increase the QUANTity supplied at each price

21
Q

Surplus

A
  • QUANTity supplied greater than QUANTity demand
22
Q

Equilibrium

A

when QUANTity supplied = QUANTity demanded

23
Q

Supply QUANTity (QS)

A
  • the QS of any good is the amount that sellers are willing & able to sell at a specific price
    -QS is a point on the supply curve.
24
Q

Normal good

A
  • is positively related to income
25
Q

inferior good

A

negatively related to income

26
Q

Demand curve shifters: Prices of related goods

A
  • Complements: 2 good are “complements” if an increase in price of 1 causes a fall in demand for the other
27
Q

Quantity Demand (QD)

A
  • the QD of any food is the amount of the good BUYERS are willing + able to PURCHASE at a specific price
  • QD is a point on the demand curve
28
Q

Supply and demand rule #1

A

If s & d are shifting in the SAME direction then QUANTITY changes but the price is unknown

29
Q

Supply and demand rule #2

A

If s & d are shifting in the OPPOSITE direction then PRICE changes and quantity is unknown

30
Q

Equilibrium

A
  • if above equ. line then its surplus
  • if below the equ. line then its shortage
31
Q

Elasticity of demand

A
  • Equation - % change in Qd / % change in P
  • measures the price - sensitivity of buyers ( you)
  • remember Quantity is on top of fraction , Price is on the bottom of the reaction
32
Q

HOW to calculate the % change

A

End value - start value / start value =? then ? x 100 = answers

33
Q

WHY do we use the midpoint method ( elasticity )

A

-It doesn’t matter what value you start with and it doesn’t matter what value you end with you will always get the same elasticity
- end value - start value / midpoint = ? then ? x 100

34
Q

How to get the midpoint number

A

P1+P2 = ? then ?/2 = Midpoint

35
Q

RULES OF DEMAND CURVE /ELASTICITY

A
  1. elasticity is the ratio of the two percentages - NOTE : NOT RISE OVER RUN OR SLOPE, but elasticity and slope are related
  2. the FLATTER the curve , the BIGGER the elasticity
  3. the STEEPER the curve, the SMALLER the elasticity
  4. There are 5 different classifications of D curve
36
Q

What is cost

A
  • its the value of everything a SELLER must give up to produce a good
37
Q

Producer Surplus : Equation + def.

A
  • Producer Surplus (PS) = Price (P) - Cost
  • is the amount a seller is paid for a good minus the sellers cost
38
Q

Consumer Surplus : Equation + def.

A
  • CS = WTP - P
  • is the amount a buyer is willing to pay minus the amount the buyer actually pays
39
Q

What is total surplus

A
  • total surplus is the CS combine with the PS
  • TS = CS + PS
  • total gains from trade in a market
40
Q
A

Gabriella K. (10 decks)

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