ECON 251 Exam 1 Flashcards
(46 cards)
1
Q
what is economics?
A
- a social science that studies the choices we make as we cope with scarcity; the incentives that influence and reconcile our choices
2
Q
what is a normative statement/normative analysis?
A
- measures of opinion or judgment; CANNOT be checked against facts
ex. “the unemployment rate is too high”
3
Q
what does ceteris paribus describe?
A
- “all else being the same”
way of making economic decisions
4
Q
what is scarcity?
A
- Limited quantities available; we’re not able to get everything that we want
5
Q
what are the 4 categories of factors of production?
A
- land/natural resources
- labor (there aren’t infinite people to do every single task that needs doing)
- capital (physical capital ONLY; tools instruments machines used to produce goods and services)
- entrepreneurship - (organization of the other 3 resources) –> entrprenuers develop new ideas, drive econ progress
6
Q
is money a factor of production? why or why not?
A
- NO
- because it can’t be used to produce goods or services (can be burned to make a fire ig lmao dassit)
- because money does nothing productive for us. Money cannot create anything. Money can, however, buy you natural resources like cocoa eggs and sugar. Bowls, spoons, ice cream
7
Q
which factor of production earns the most income?
A
- LABOR
8
Q
what are positive vs negative incentives? what are their equivalents?
A
- Positive incentives are the ones that encourage us to do something, more likely to make that choice —> BENEFITS
- Negative incentives discourage us and make us less likely to do something —> COSTS
9
Q
what constitutes a rational choice?
A
- a situation when benefits outweigh costs
10
Q
what is an object’s opportunity cost?
A
- the highest valued alternative that you have to give up to get it; ex. OC of going to college –> 10,000 in tuition that could go to other things
- doesn’t have to be money (the $$ is not a cost, but what you could otherwise buy with the money is)
11
Q
what is the production possibilities frontier (PPF)?
A
p34
12
Q
what is a comparative advantage?
A
- when a person’s Opp Cost for producing a good is LOWER than the OC for someone else to produce the same good
13
Q
what is an absolute advantage?
A
- a person who is more productive than others; comparison of productivity
- can produce faster, OR more in the same amount of time
14
Q
what is a sunk cost? how is it different from OC?
A
- an irreversible expense; no way to avoid it
- ex. costs of college: paying for your dorm is a “sunk cost” cause you would have to pay to live SOMEWHERE even if you weren’t at school; also food, etc.
- ex. waiting 30 mins for dinner res –> end up waiting 45 ins. told have to wait an additional 30mins. SC = is the 45 mins you already waited
- OC is an alternative, you don’t HAVE to choose that option, so there’s costs/benefits associated with it
15
Q
opportunity cost: what is an explicit cost?
A
- MONEY; literally coming out of a bank account/from your resources
16
Q
opportunity cost: what is an implicit cost?
A
- a cost that is hypothetical; ex. forgone wages, if i WEREN’T in college, i would be making x amount of money
17
Q
what’s the econ way of saying additional?
A
- marginal ex. “marginal benefits”, “marginal cost”
18
Q
what happens to marginal benefits as quantities rise?
A
- marginal benefits FALL as quantity rises;
- the more you have of 1 thing, the less you value the addition of 1 more
19
Q
what happens to marginal costs as quantities rise?
A
- marginal costs RISE as quantity rises
- ex. college education; each year you’re in college that’s another year of money you could have made working
20
Q
what should happen to quantity when MB and MC are greater/lower than the other?
A
when MB> MC –> increase Q
when MC > MB –> decrease Q
MC = MB –> rational choice
21
Q
what is a positive statement/ analysis?
A
- statement about “what is”; may be right or wrong but cn be checked against facts
22
Q
what are rules of comparative advantage? (2)
A
- if 1 person has CA in 1 task —> the other person must have CA in the other task (only works for 2 ppl x 2 tasks)
- NO ONE can have a CA in every task (ex. really good athlete, can’t play every position at once)
23
Q
what is a production possibilities frontier (PPF)?
A
- graph of the MAX output of a product that can be produced
24
Q
characteristics of individual PPF curves (3)
A
- slope will ALWAYS be negative
- magnitude of slope always reflects the marginal cost of variable “x” [[inverse of slope = MC of variable “y”]]
- Flatter PPFs have lower slope –> lower MC
[[X axis shows variable of interest]]
25
what are marginal costs?
- what is given up (of the other product) by producing 1 of the other product
- ex MC of "x" = rate of product y / rate of product x
26
characteristics of economy-wide PPF curves (5)
1. assign tasks based on who has comparative advantage
2. relationship is not linear
3. points BELOW the PFF = represent inefficient production
4. points ABOVE the PFF = represent infeasible production
5. points ON the PPF = represent efficient production; producing at the lowest possible cost
27
economy-wide PPF curves: what is the point of specialization?
- the point where 1 person reaches their max production amount
28
PPFs: what is production efficiency?
- producing goods at the LOWEST possible cost; "what's the cheapest way to produce?"
29
PPFs: what is allocative efficiency? can it be shown on a PPF?
- using resources where they are most highly valued; PPFs can't tell us how; "what do people actually want?"
30
shifts in PPFs ()
who has CA?
need X intercept, Y intercept, and point of specialization (each only doing task for which they have CA)
1. changes in quantity/access to resources or productivity of resources (ex. training programs for workers that increase their productivity) ----> shift in PPF
- shifts to the RIGHT --> economic growth
2.
31
ch 3: what is demand?
- the max quantity of something consumers are WILLING and ABLE to purchase at a various prices; have to want something AND be able to afford it ; NOT dependent on price
- from the consumer's perspective,
32
what is the law of demand?
- describes the inverse relationship between P and QP
- as price increases --> the quantity demanded decreases
- as price decreases --> quantity demanded increases
33
characteristics of the demand curve (3)
1. Price - Y axis (but independent v)
QD - X axis (but dependent v)
2. utilize slope intercept eq (y=mx+b) to solve for QD; is a calculation of marginal benefit
3. shift to the RIGHT --> increase in demand
shifts to the LEFT --> decrease in demand
34
5 factors (other than price) that affect demand curve
1. income
- normal goods (D rises when income rises, vv)
- inferior goods (D rises when income falls, vv) [ex. the more income you have, the less need you have for ramen noodles lmao]]
2. complements in consumption
3. future expectations
- ex. if we expect price to rise, current D increases
4. number of buyers/population
- more ppl = more demand
5. tastes and preferences
- what do ppl like? what's popular rn?
35
what are complements in consumption?
- goods that are used/bought together
| ex. increasing the price of 1, decreases the demand of the other
36
what is quantity demanded?
- change in the quantity demanded is a change in the quantity of a good that people plan to buy that results from a change in the price of the good with all other influences on buying plans remaining the same. 2 3
37
what is supply?
- the max quantity a SELLER is willing and able to sell at various prices
38
what is the law of supply?
- price and quantity supplied are POSITIVELY related
- as price increases --> the quantity supplied INCREASES
- as price decreases --> quantity supplied DECREASES
39
characteristics of the supply curve (4)
1. Price - Y axis (but independent v)
QS - X axis (but dependent v)
2. utilize slope intercept eq (y=mx+b) to solve for QS; is a calculation of marginal cost
3. supply curve is always POSITIVE
4. shift to the RIGHT --> increase in supply
shifts to the LEFT --> decrease in supply
40
5 factors (other than price) that affect the supply curve
1. input prices
- INCREASE wages paid to workers
2. prices of related goods IN PRODUCTION
- substitutes in production: goods produced with same resources; alternatives [ex. choco mint cupcakes instead of thin mints] increase in price of a substitute --> REDUCTION in supply of good 1
- TIENE K VER CON "SUPPLY"
- complements in production: goods that are automatically produced together; aka "by-products" [ex. a saw mill cutting logs inherently produces sawdust; increase of price of beef --> increased supply in leather]
3. future expectations
- ex. if we expect price to rise, current S decreases (bc we want to wait to produce more)
4. number of sellers
- if there are more people selling a good --> there is more of that good available
5. change in technology
41
what happens when there's simultaneous shifts in S + D?
1. one component of equilibrium becomes INDETERMINATE (Ex. price, Q demanded)
2. Must look at each shift INDIVIDUALLY
42
what is elasticity?
- how responsive is a market to changes? (in price, in season of the year, etc.) ex. hot chocolate, gas
43
what is the price elasticity of demand?
- responsiveness of consumers to a change in price (
| - when there's a BIGGER change in QD based on a change in price --> that market is said to have MORE elasticity
44
measures of elasticity
- measured in "PERCENTAGE OF CHANGE" in price or quant demanded (a unit free measure)
- always take abs value
- 3 ranges of 3lasticity
1. % Change in DEMAND > greater than > % change in PRICE ===== D is elalstic (bigger than 1)
2. % Change in DEMAND < less than % < change in PRICE ===== D is inelastic (less than 1)
3. % Change in DEMAND === equals === % change in PRICE ===== D is unit elastic (equal to 1)
45
determinants of Elasticity
1. Substitutes:
- FEWER substitutes --> LESS E D
- MORE subs ---> MORE E D
- if the price of ALL softdrinks goes up, there will b less reaction (ppl will still probably buy them) but if the price of JUST COKE goes up, there will be a bigger reaction --> people will buy other softdrinks (pepsi, dr p instead) ==== there's MORE elasticity when there's more subs (for coke), LESS E when fewer subs (for softdrinks in general)
2. the portion of income/budget a purchase takes
- smaller prop of income --> LESS Elast D (the change is not that relevant, nbd)
- bigger prop of income ---> MORE Elast D (bigger reaction, ex. doubled mortgage)
3. Time (to make a decision)
- MORE time --> more alternatives --> MORE E in D
- LESS time --> fewer altrenatives --> LESS E in D
46
what is revenue?
- R = price x Quant Demanded
- Raising price: the impact on revenue depends on how Qd changes
1. if D is Elastic --> raising price decreases Qd (by a big amount) == R decreases
- lowering price INCREASES Qd == R increases
2. if D is Inelastic --> raising price DECREASES Qd (by a smaller amount) == R increases
- lowering prices INCREASES Qd (by a small amount) == R decreases
3. if D is = 1; there's no changes in Qd or price --> indicates a Max or Min value of Revenue (at the midpoint of the Demand curve)
