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Flashcards in Final Exam Deck (47):
1

Scarsity

The limited nature of society’s resources
Nothing is infinite in nature—not even air and water!

2

Opportunity Cost

The highest-valued alternative that must be sacrificed in order to get something else

Multiple trade-offs, but only one opportunity cost

Not all alternatives, just the next best choice

3

The Law of Demand

All other things equal, there is an inverse relationship between price and quantity demanded

Inverse: two variables move in opposite directions

Income, diminishing marginal utility, and the substitution effect dictate the law of demand

4

Income effect

as prices go up, income stays relatively steady so if the price goes above someone’s income, they are out of the market

5

Diminishing marginal utility

The satisfaction of doing something goes down every time that you use it

6

Substitution effect

when something gets too expensive, we look for an alternative

7

Law of supply

All other things equal, there is a direct relationship between price and quantity supplied.

Direct: two variables move in the same direction

8

What is the different between a change in quantity demanded and a change in demand?

A change in quantity demanded is a movement along the curve and a change in demand is a shift of the curve

9

What changes demand? (5 Shifters of Demand)

Changes in income, changes in the price of related goods, changes in tastes and preferences, change in future expectations, change in the number of buyers

10

What changes supply? (5 Shifters of Supply)

The costs of inputs, changes in technology, taxes and subsidies, change in the number of sellers, and changes of price expectations

11

Inelastic Demand

Quantity demanded changes a small amount as the result of the price change

12

Elastic Demand

Quantity demanded changes significantly as the result of the price change

13

Inelastic Demand Characteristics

Goods with few substitutes, goods that are cheaper, and goods that take less time to acquire

14

Elastic Demand Charactersitics

Goods with a lot of substitutes, goods that are very expensive, and goods that take a long time to acquire

15

Elasticity of Demand Equation

% change in quantity demanded / % change in price

16

Perfectly Inelastic Demand

Ed = 0

17

Relatively Inelastic Demand

Ed is between 0 and -1

18

Unit Elastic

Ed = -1

19

Relatively Elastic Demand

Ed is less than -1

20

Perfectly Elastic Demand

Ed = - infinity

21

Cross Price Elasticity of Demand

Measures the responsiveness of the quantity demanded of one good to a change in the price of another good

22

Substitute goods cross price elasticity

Positive

23

Complementary Goods Cross Price Elasticity

Negative

24

Cross Price Elasticity of Demand Formula

% change in Qd (A) / % change in price (B)

25

Income Elasticity

Responsiveness of the change in quantity purchased as a result of a change in income

26

Income Elasticity of a Normal good

Positive

27

Income Elasticity of an Inferior good

Negative

28

Consumer Surplus

Buyer’s Maximum – Price

29

Producer Surplus

Price – Seller’s Minimum

30

Total Revenue (TR)

The amount a firm receives from the sale of goods and services

31

Total Cost (TC)

The amount a firm spends in order to produce those goods and services

32

Explicit costs

Tangible expenses. Bills that the owner has to pay.
Wages, insurance, food ingredients

33

Implicit costs

Opportunity costs of doing business

Opportunity cost of capital

----Bought a franchise for a large sum of money. How could the money have been invested otherwise?

Opportunity cost of owner’s time above salary paid

-----How much could the owner get paid elsewhere?

34

Accounting Profit

Does not take into account implicit costs of doing business

35

Economic Profit

Considers “All Costs” = (Explicit Costs + Implicit Costs)

Economic Profit = Revenues – All Costs

36

Diminishing marginal product

Successive increases in an input eventually cause output to increase at a slower rate

37

Derived Demand-

The demand for resources is determined (derived) by the products they help produce.

38

What is Demand for Labor?

Demand is the different quantity of workers that businesses are willing and able to hire at different wages.

39

What is Supply for Labor?

Supply is the different quantity of individuals that are willing and able to sell their labor at different wages.

40

Marginal Revenue Product (MRP)-

Change in TR / change in inputs

41

Marginal Resource Cost (MRC)-

Change in TC / change in inputs

42

Shifters of Labor Demand

1.) Changes in the Demand for the Product
2.) Changes in Productivity
3.) Changes in Price of Other Resources

43

Shifters of Labor Supply

Number of qualified workers

Government regulation/licensing

Personal values regarding leisure time and societal roles.

44

Antitrust policy

Government efforts that attempt to prevent oligopolies from behaving like monopolies

45

Sherman Act of 1890

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”

46

Positive network externalities

Bandwagon effect

Individual preferences for a good increase as the number of people buying the good increases

Internet, social networks, cell phones, fax machines, MMORPGs, video game consoles, fads, night clubs

47

Negative network externalities

Snob effect

Individual preferences for a good decrease as the number of people buying the good increases

Exotic pets and sports cars

Hipsters

Services that are prone to “congestion.” Pool, beach, student union gets “too crowded,” and you don’t want to go