Microeconomics Exam

decision making with a specific toolset
-social science (how a decision is made)

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.
-forces someone to make choices

A positive or negative environmental stimulus that motivates behavior.

Offer rewards/ payment for an action.

Discourage an action by giving consequences.

Generally easy to recognize
-"This is what I want, and I will give you this to do it."

A secondary change in behavior brought on by the original incentive.
-by reaching the sales quota, they spend less time with family

The unexpected and unplanned results of a decision or action (usually negative).

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another.
(cost of what is being given up to obtain something)

Requires a purposeful evaluation of the available opportunities to make the best decision possible.

Make the decision whether the benefit of one more unit of something is greater than cost.

When a person/company can produce at a lower opportunity cost than another.

Can be tested and validated.
Describes "what is."

An opinion that cannot be tested or validated.
Describes "what ought to be."

Variables that can be controlled for inside a model.

Variables that cannot be accounted for in a model.

Illustrated the combinations of outputs that a society can produce if all its resources are being efficiently.
-Slopes down because you must give up one to get another
-Not a constant slope because it will become steeper as OC of producing a good will rise as production increases (steeper from left to right)

how to allocate resources to satisfy wants and needs

the patent and copyright system provides an exclusive right to sell the product for a period of time.

the highest valued alternative that someone gave up to prepare for and attend the exam.

of the presence of differing Opportunity Costs.

The claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises.

Goods for which demand tends to fall when income rises.

Goods for which demand goes up when income is higher and for which demand goes down when income is lower.

A measure of the sensitivity of demand (consumer's sensitivity)to changes in price.

The measure of the sensitivity of the quantity supplied (producer's sensitivity) to changes in price of a good.

Describes demand that is very sensitive to a change in price.
-Can drink both coke and pepsi
-bigger numbers

Describes demand that is not very sensitive to a change in price.
-Can only drink coke
-small numbers

The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

The percentage change in demand for product A that occurs in response to a percentage change in price of product B.

-Positive for substitutes
-Negative for complements

To produce more of one good, a successively larger amount of the other good must be sacrificed.
-why the PPF slope is how it is

The limiting of one's work to a particular area.

One person can perform one task more efficiently than another.

The relative prices or exchange rate of goods.

The period in which we make decisions that reflect our immediate or short term wants, needs, or limitations.
-consumers can only partially adjust behavior

The period in which we make decisions that reflect our needs, wants, and limitations over a long term horizon.
-consumers have time to fully adjust to market conditions

Long run has a larger quantity of produced capital and consumer goods.

Goods that help produce other valuable goods.

Place where buyers and sellers meet.

Resources are allocated among households and firms with little or no government interference.
-producers and consumers are motivated by self interest.

Term economists use to describe the self-regulating nature of the marketplace.
-guides resources to their highest valued uses

-Many buyers and sellers
-Similar goods are sold
-No individual influence over the price

Buyer or seller has an influence on the price.

The firm's ability to influence price.

A single company that supplies the entire market for a good or service.

The amount of a good buyers are willing and able to purchase at the current price.

Horizontal sum of all individual quantities demanded by each buyer in the market at each price.

Movement along a demand curve.
-caused by price change

Shift of the demand curve.
-caused by nonprice factors

-Normal goods: buy more when income is higher
-Inferior goods: buy less when income is higher

-Complements: Buy less if the complement becomes more expensive
-Substitutes: Buy more of the substitute if the other becomes expensive.

Good may become more fashionable or not (in and out of season).

Consumption today may depend on what we think the price may be tomorrow.

More individual buyers mean more market demand.

Excise taxes raise the cost to consumers.

The amount of the good or service that producers are willing and able to sell at the current price.

Movement along a supply curve.
-caused by price change

Shift in the supply curve.
-caused by a change in nonprice factors

Resources used in the production process.
-more expensive = less supply

Knowledge that producers have about how to produce a product.
-less knowledge = less supply

Tax
-Tax paid by producer -> added cost of production
Subsidy
-"opposite" of a tax; government pays sellers to produce goods
-reduces cost of production

More individual sellers means more market supply.

Higher price expected tomorrow delays sales until future.

The market price of any good will adjust to bring the quantity supplies and quantity demanded into balance.

The price at which quantity supplied is equal to quantity demanded.
-the price that "clears the market"

The quantity at which quantity demanded is equal to quantity supplied.

Occurs at price below equilibrium.
-price will rise over time toward equilibrium

Occurs at any price above equilibrium.
-price will fall over time toward equilibrium

-Demand curve shifts right
-equilibrium price and equilibrium quantity increase

-Supply curve shifts right
-equilibrium price declines
-equilibrium quantity increases

-Demand curve shifts left
-Equilibrium price and equilibrium quantity decrease

-Supply curve shifts left
-Equilibrium price increases
-Equilibrium quantity decreases

-Both curves shift right
-Equilibrium quantity increase
-Equilibrium price remains same

-Both curves shift left
-Equilibrium quantity decreases
-Equilibrium price remains same

-Demand curve shifts right
-Supply curve shifts left
-Equilibrium price increases
-Equilibrium quantity stays same

-Demand curve shifts left
-Supply curve shifts right
-Equilibrium price decreases
-Equilibrium quantity remains same

A measure of responsiveness of quantity demanded to price change.

The closer the substitutes and the more substitutes there are, the more elastic is demand.

Determines how much the price change affects the consumer.

-Luxuries are elastic
-Necessities are inelastic

-Narrow = less substitutes = inelastic
-Broad = more substitutes = elastic

Affects the ability of consumers to respond to changes in price.
-short term = inelastic
-long term = elastic

(% change quantity demanded)/ (% change price)

-Relatively elastic demand curves are FLATTER
-Relatively inelastic demand curves are STEEPER

The amount that consumers pay and sellers receive for a good.

Measures how a change in income affects spending.
(% change in QD) / (% change in income)

EI > 0 = Normal Good
-Necessities 1 > EI > 0
-Luxuries EI > 0

EI < 0 = Inferior Good

(% change in QD of X) / (% change in P of Y)

EC > 0 = Substitutes
EC < 0 = Complements

Measures the responsiveness of the quantity supplied to a change in price.

More production flexibility implies more elastic supply.

Immediate Run
-Suppliers are stuck with what they have; no change

Short Run, Long Run
-Over time, the firm is able to adjust to market conditions.
-Becomes more Elastic

(% change in QS) / (% change in P)