Exam One Micro-Economics

having a limited quantity of resources to meet unlimited wants

Microeconomics is the study of economics at an individual, group or company level. Macroeconomics, on the other hand, is the study of a national economy as a whole.

Microeconomics

These questions deal with FACTS. They can be answered using information obtained. Such as "the sky is sunny"

Questions that deal with OPINIONS. Often start with "should"

The value of your next best alternative use of your time and/or money. What you are giving up to get something else.

The increased time spent commuting and the $40,000 from the other job. You'd still be letting go of the $40,000 to get the $45,000 even if it's a larger amount so it's an opportunity cost.

Land--> Real estate that one is on in order to operate on. Every natural resource that comes from the land. The physical ground or anything that comes from the ground.

Labor--> People/Workers. Workers without considering the knowledge of the workers.

Capital--> In the strict sense is physical (tractors, machinery). Physical manufactured goods used in the production.

Ideas--> Innovation/Entrepreneurship. Nontangible but very important.

Point C. Anything to the left is efficient but isn't being used efficiently. Points on the PPF curve such as A and B are efficient and are being used correctly. D or anything to the right is not feasible with the current resources.

PPF B or the PPF with a curve.
A linear or straight curve means we are still giving up things (opportunity cost) but we have a constant slope which means there isn't an increase in opportunity cost.

A curve implies we do have an increase in opportunity cost.

A country can produce more than one good than another country using the same amount of resources.

Such as lets say US vs. Brazil in small jets and large jets. If the US only made large jets and no small they'd make 30. If they only made small and no large they'd make 40. While Brazil if only making large would make 10 and only making small would make 30. US has the absolute advantage here because either way they produce more.

A country has a lower opportunity cost of producing a good than another country.

If US absolute advantage for large jets is 30 and for small its 40 the comparative advantage for large jets is 40/30= 4/3. For small jets its 30/40=3/4.

Brazil: Absolute advantage for large is 10 and for small its 30. Comparative advantage for large is 30/10= 3 and for small its 10/30= 1/3.

An increase in the population and an increase in capital. Both of these factors help both industries and not just one, if it was just one such as changes in production for one of them it would just move along the curve and not actually shift it.

Willingness to pay.
It's not consumer surplus because that's the difference between WTP and the actual cost paid. WTP-P

Law of demand.
A demand curve is always negative sloping (inverse)

(I)ncome of buyers
(R)elated goods
(E)xpecations
(N)umber of buyers
(T)astes/preferences
IRENT
Right is positive (increase)
Left is negative (decrease)

Complementary goods

Substitute goods

Law of Supply

(I)nputs (the price of resources used to make the final product)
(T)echnology (advancements in technology production)
(E)xpectations
(N)umber of sellers
(D)isaster
ITEND

Surplus: Quantity Supplied or Q(tiny s) > Quantity demanded (Q small d). If the demand curve is hit first it implies that the demand curve is lower which means surplus.

Shortage: Quantity Demanded > Quantity Supplied
If the supply curve is hit first it implies the Quantity Supplied is lower meaning shortage.

Above the equilibrium price and below the demand curve is consumer surplus. The area below the price and above the supply curve is producer surplus.

A government-set MAX price that can be charged for a product or service. Can cause shortages

A government-set MIN price that must be charged for a product or service.