Part Three- Trade

Question 1

Trade

Answer 1

trade makes us wealthy and generates wealth. there is a perceived imbalance when it comes to trade. Diversity in trade makes us wealthier because of when people value things differently. We are more productive when we use resources and trade.
Trade is a nontechnical form of production. Trade saves resources by encouraging those who use them efficiently to do so.

Question 2

PPF

Answer 2

Production Possibility Frontier. shows us all combinations between two given stock options. Points under are not optimal, on it are said to be productively efficient, and above are not yet attainable until economic growth. It is not enough to be producing things but you must produce things of value.

Question 3

Absolutely good

Answer 3

if someone were to spend all time on one good they are absolute good- max that can be made.

Question 4

Absolute advantage

Answer 4

if output of one person for a specific good is higher that person is said to have an absolute advantage. what you can make while incurring the fewest trade offs

Question 5

productively efficient

Answer 5

when someone is producing something on the curve of the PPF

Question 6

What does the shape of the PPF tell us?

Answer 6

it is negative slope- that there is always a tradeoff being made. This shows us scarcity and that we can’t have everything. It also shows us that there is more being given up on the alternative as you do more of one option.

Question 7

Law of diminishing returns

Answer 7

the more you make of something the costlier it is going to be down the line. At the margin the opportunity cost changes. This is implied by the competitive equilibrium .

Question 8

Economic Growth can come from…

Answer 8

1. resources 2. knowledge 3. technology 4. institutions

Question 9

When should two people trade?

Answer 9

must figure out what you have an absolute advantage in and specialize in that trade. We are comparing who is worse at what- that person should spend their resources on the other good, and trade with the person that is better at the alternative.
Trade should happen when the costs are lower than the benefits.

Question 10

Why shouldn’t we judge based on imports and exports?

Answer 10

does not tell us costs and therefore judgements cannot be made.

Question 11

Are people losing jobs from trade?

Answer 11

No- it is from technological advancements. Looking at trade deficits compared to items of recession show us that the two don’t always coordinate to substantiate this claim. We can also see that manufacturing jobs around the world are decreasing and if we were really losing them from trade they would be increasing to other places. Trade is actually good because of jealousy of trade and we must take risks

Question 12

Quantity demanded

Answer 12

Amount of how much of a good or service you are willing and able to trade off for. Must be phrased as: when price is X, quantity demanded is Y, when all else is equal

Question 13

Demand

Answer 13

a set of all possible quantities demanded we know quantity demanded decreases when the tradeoffs increase based on the negative slope of the demand curve. It is marginal.

Question 14

Decisions are marginal based on

Answer 14

feelings and situation

Question 15

when you chose to buy something you are evaluating

Answer 15

everything else you could do to meet that need (as compared to what), a spoon is not a spoon

Question 16

when a price is too high you…

Answer 16

If someone doesn’t get something it means tradeoff is too high not that they do not value it. you are actually being considerate of other people who do want it because the price tells you someone is willing to pay

Question 17

Demand curve

Answer 17

when price is X, demand is Y. Really it should be 3d to include everything that goes into a decision.

Question 18

What can you see on a demand curve

Answer 18

1. Plot of marginal values 2. total expenditures 3. total value 4. buyer satisfaction

Question 19

Plot of marginal values on demand curve

Answer 19

how much you pay to have one more of something if you already had a certain amount. Keep in mind that just because a price is zero doesn’t mean you will want an infinite amount of it because you would still be giving something up

Question 20

Total expenditures on demand curve

Answer 20

P*Q

Question 21

Total value on the demand curve

Answer 21

by seeing everything being given up

Question 22

Buyer satisfaction on demand curve

Answer 22

net value of each good

Question 23

why does the demand curve slope down

Answer 23

1. diminishing marginal utility 2. substitutes 3. income and wealth effects

Question 24

income and wealth effects on demand curve

Answer 24

income= the amount paid for doing something for a specific amount of time. When prices increase it is as it you have been made poorer if there aren’t any alternatives. This is no different than income decreasing and prices staying the same. This in particular is a problem for the poor.

Question 25

diminishing marginal utility on demand curve

Answer 25

if i get less pleasure from the next unit i will pay less for it. you always are giving up more to consume more of X>

Question 26

substitutes on demand curve

Answer 26

you look for alternatives if the trade off is too high

Question 27

Transactions problem

Answer 27

when a trade does not happen even though it would be beneficial to both parties

Question 28

Transactions costs

Answer 28

things that prevent the trade which are costlier than the value itself such as communication and distance issues

Question 29

Middlemen

Answer 29

exist to solve the transactions problem by bringing goods and services to the people who need them.

Question 30

Markets

Answer 30

exist to help overcome transactions problems by transmitting knowledge. A market can be an form (virtual or literal) all potential costumers that could at any point want the good are in the market Since these are based on prices, it tells you what you need to do and why. Markets always work themselves out- behaviors change easily and logically

Question 31

Prices (within a market) are determined by

Answer 31

market process, plans are met because prices adjust to satisfy buyers and sellers. A price can take three forms.

Question 32

Three Forms price can take:

Answer 32

1. Money Price- right price. 2. Satisfies buyers not sellers (there is a surplus) 3. Satisfies sellers not buyers (there is a shortage)

Question 33

Law of demand

Answer 33

the quantity demanded of a good falls when you have to give up too much to get it

Question 34

Misconceptions of the market

Answer 34

1. All goods are the same 2. just because something is scarce doesn't mean there should be higher prices for it 3. you don't ever have full information 4. you don't want to live in a world with perfect competition 5. markets don't fail if they don't look like ideals

Question 35

Market demand

Answer 35

if you add up all the individual demands you can view total market demand. A market demand curve is always more elastic so it will always appear flatter.

Question 36

What changes consumption

Answer 36

1. Price of good 2. something else

Question 37

Price of good in relation to consumption

Answer 37

we move existing demand curve- quantity demanded changes

Question 38

"something else" in relation to consumption

Answer 38

change in demand itself= price of alternative etc. we say there is a shift out

Question 39

Things that impact demand curve

Answer 39

1. income 2. prices of other goods 3. tastes 4. expectations about income, prices and substitutes

Question 40

normal goods

Answer 40

goods we would consume more of if we have more money. what is normal is not constant

Question 41

inferior goods

Answer 41

quantity demanded decreases when income increases

Question 42

substitutes

Answer 42

goods that are complete alternatives and can impact the demand curve.

Question 43

complements

Answer 43

when price of good a increases, consumption of b decreases. (sugar and coffee)

Question 44

Opportunity costs in relation to supply

Answer 44

when you are willing to produce when you are willing to produce something the cost of production. Producers produce based on price of selling and producing.

Question 45

costs

Answer 45

Something that consumes something of value. Costs must be tied to specific actions and a specifis group of people

Question 46

Quantity supplied

Answer 46

amount of good or service you are willing to produce at a certain price

Question 47

supply

Answer 47

a set of all possibly quantities supplied

Question 48

law of supply

Answer 48

as price of good increases, more willing you are to sell it (generally)

Question 49

Supply curve

Answer 49

shows us when price is Y, you are willing to sell X amount.

Question 50

Supply curve slope/why is it in the shape it is

Answer 50

slopes upward. Shows that it costs more to male more- each worker you need you must pat more than they are currently getting without changing technology it is more costly to make each addition. This is shape because of price elasticity of supply

Question 51

What we see on a supply curve

Answer 51

1. Marginal opportunity cost 2. total costs of making good 3. total revenues 4. producer surplus.

Question 52

Marginal opportunity cost on supply curve

Answer 52

labor costs included im willing to forego costs of other things

Question 53

Total costs of making good on supply curve

Answer 53

costs 1st + all following

Question 54

Total revenues on supply curve

Answer 54

Price X, sell Y, revenue X*Y

Question 55

Producer surplus on supply curve

Answer 55

selling price- cost of making

Question 56

What changes what you are willing to produce

Answer 56

1. changes in price 2. amount/cost of resources, opportunity elsewhere, prices of other goods, tech advancements 3. expectations about anything

Question 57

price elasticity of supply

Answer 57

how sensitive the producers are to change in outcome price (percent change in quantity supplies/percent change in price). Steeper the cure, more elastic supply. It is possible to have a perfectly inelastic curve.

Question 58

Rationing mechanisms

Answer 58

We come up with riles for how to get limited amount of things to needy people. Must consider: 1. nature of competition 2. problem with supply- must have incentives 3. how easy for those worse off 4. ability to plan 5. can it scale (the price system takes care of all of these issues)

Question 59

What can you see on the supply/demand curve

Answer 59

1. demand- peoples values 2. supply- marginal costs of production and foregone profits

Question 60

Equilibrium

Answer 60

where the supply and demand curve intersect. this is the "right price" for the given good. Here, nobody has an incentive to change their behavior. an equilibrium must include price and quantity. there are two types of equilibrium- market clearing and non market clearing.

Question 61

When looking at supply and demand curve, always ask

Answer 61

1. does anyone have an incentive to change their behavior--> can someone be better off if the price was different? 2. Who's plans are not satisfied- this would tell us if incentives are present. How much do the buyers want to buy and how much do sellers want to sell?

Question 62

Surplus

Answer 62

when quantity supplied is greater than quantity demanded. There is pressure here for prices to fall- the surplus is dealt with if there are low prices.

Question 63

Shortage

Answer 63

when quantity demanded in greater than quantity demanded. You can have a shortage at any price- must look at quantity supplied vs. quantity demanded

Question 64

A surplus and shortage defined by...

Answer 64

price and how many people want it. Never say because of price i know X.

Question 65

What can sellers do to fix surplus and shortages?

Answer 65

change in price. must find the right price so that there are not too many/few suppliers willing to sell and there aren't too many/few demanders . when this cannot happen it is because of regulations.

Question 66

Why are surpluses bad

Answer 66

rent control- sellers have the ability to do whatever they want to consumers because there will be another buyer

Question 67

To answer questions about changing curves..

Answer 67

1. state which side of the market is effected by the change 2. what is the new equilibrium.

Question 68

Price

Answer 68

a price is a tradeoff. A price is information, tells you what you need to do without why. A price is right when it meets the plans of buyers and the sellers. The price system has everyone chip in

Question 69

elasticity of supply and demand curve

Answer 69

prices adjust to reach equilibrium. Without one person needing to put all the information today and instruct on what to do. It also does it in the most optimal way.

Question 70

What happens when it becomes easier to get a good?

Answer 70

Titanium story

Question 71

Why are equilibrium good?

Answer 71

1. quantity supplied=quantity demanded results from people trying to get the best feeal as possible. People will always reach the right price no matter what. 2. people who consume goods are the people who value it the most.

Question 72

Allocation mechanism of Economics

Answer 72

how it is the people who consume goods are those who value it the most.

Question 73

What doesn't high demand mean

Answer 73

high demand does not mean higher price. IF r=prices are rising all you know if that demand is increasing or supply is decreasing.

Question 74

Why do people not like the price system

Answer 74

ironic- prices are never the problem- it is our own values and costs. prices are just a reflection of this.

Question 75

Things to track following a regulation

Answer 75

1. Quality of good 2. amount of available goods 3. new fees 3. misallocation 5. impact on other goods 6. fairness for poor 7. discrimination 8. enforcing is cost