Microeconomics 200: Chapters 1-4

a function that shows the quantity demanded at different prices and is negatively sloped

the quantity that buyers are willing and able to buy at a particular price

the price and quantity demanded are inversely related

the consumer's gain from exchange; difference between the maximum price a consumer is willing to pay for a certain quantity and the market price. lower prices=greater consumer surplus & higher prices=less consumer surplus

CS=1/2bh

the area beneath the demand curve and above the price

means an increase in demand. at each price, people are willing to buy more & at each quantity, people are willing to pay a higher price

means a decrease in demand. at each price, people are willing to buy less & each each quantity, people are willing to pay a lower price

income, population, price of substitutes, price of complements, expectations, and tastes

a good that consumers demand more of when their incomes increase

a good that consumers demand less of when their incomes increase

things that go well together
ex. cars and tires

a good that can be consumed in place of another good

a function that shows the quantity supplied at different prices and is positively sloped

the quantity that sellers are willing and able to sell at a particular price

the producer's gain from exchange, or the difference between the market price and the minimum price at which a producer would be willing to sell a particular quantity

the area above the supply curve and below the price

means an increase in supply. at each price producers are willing to sell more
& at each quantity, producers are willing to accept a lower price

means a decrease in supply. at each price sellers will offer less &
at each quantity, sellers demand a higher price

technological innovations, taxes and subsidies, expectations, entry or exit of producers and changes in opportunity costs

the price at which the quantity demanded is equal to the quantity supplied. the intersection of the supply and demand curves

a situation in which quantity supplied is greater than quantity demanded. price is above equilibrium

a situation in which quantity demanded is greater than quantity supplied. price is below equilibrium

then there isn't enough to satisfy all of our wants

rewards and penalties that motivate behavior

people respond in predictable ways to incentives of all kinds. ex. fame, power, reputation, money, respect, and love

an alternative that we sacrifice when we make a decision. every choice involves something gained and something lost. are related to opportunity costs

the highest valued alternative given up as the result of a decision

we make choices by considering the benefits and costs of a little more or a little less

exchange of goods and services. leads to increased production through specialization and allows us to take advantage of economies of scale

the science which studies human behavior as a relationship between ends and scarce means which have alternative issues. basic principles apply to all countries, teaches us how to think about the world around us, & is linked to everyday life

a focus on a particular activity or area of study in order to focus on the greatest degree of efficiency

producing goods at the lowest opportunity cost

the producer that requires a smaller quantity of inputs to produce a good

shows all the combinations of goods that a country can produce given its productivity and supply of inputs. inside curve=inefficient, outside curve=unsustainable, & points on curve=efficient

reading discussed good vs. bad economics. "the art of economics consists in looking not merely at the immediate but at the longer effects of any act of policy; in consists in tracing the consequences of that policy not merely for one group but for all groups."

reading discussed the fallacy about engaging in bad economics which is only looking at the immediate effects. example given was about a broken pane of glass. a hoodlum threw a brick through the window of a shop. the shopkeeper was furious. "how much does a new plate glass window cost? if windows were never broken what would happen to the glass business?" the smashed window will go on providing money & employment in ever-widening circles. the hoodlum was a "public benefactor"

reading discussed how people respond to incentives. example given was about car seats and how "seat belts kill us." government mandated seat belts but any economist could have predicted that the number of auto accidents would increase. the reason is that the threat of being killed in an accident is a powerful incentive to drive carefully. but a driver w a seat belt faces less of a threat. incentives=less careful drivers=more accidents

reading discussed "mistaken beliefs." types include: zero sum gain-you think one loses and one gains but both actually gain from it. composition-what is true for the part is not true for the whole. chess piece-we can design things better than you. open-ended-somethings are continuously better