microeconomics midterm 1 <3

The study of production, consumption, and distribution of goods and services.

Production and consumption is determined by firms and individual actions

The market economy uses their power to benefit their self-interest instead of the good for society

The study of how individuals make decisions and how these decisions affect others

The study of the overall ups and downs of the economy as a whole

Increasing ability of the economy to produce goods and services, which can lead to higher living standards

Decisions by an individual about what to do and what not to do.

Anything that can be used to produce something else.

When there is not enough of a resource to satisfy all the ways society wants to use it.

Having to decide between two choices, and choosing both is not possible.

Comparing the costs and benefits from doing a little more of the action versus doing a little less of the action.

The study of marginal decisions

An opportunity to make people themselves better off

The total amount of goods and services the market can produce.

If you try to make things more fair, it can lead to less efficiency. If you increase one of the factors, you decrease the other.

If someone is making money, then someone is losing money.

Claims decisions are motivated by incentives that are profit motives are based on greed.

Outcomes of a purposeful action that are not intended or foreseen.

Households, firms, and the government

Through the market

People must make choices because resources are scarce

The opportunity cost is a true cost

"How much" decisions require making a trade-off at the margin

People respond to incentives, exploiting opportunities to make them better off

One person's spending is another person's income

Overall spending sometimes get out of line with the economy's productive capacity. When it does, government policy can change spending.

Increase in economic potential leads to economic growth overtime.

The government owns everything, so there is no point in having an entrepreneur.

The government is the only competitor, since there is no private property to compete against

People with businesses don't have the right to make optimal decisions because their business is owned by the government. People can't go bankrupt either.

Distribution of Wealth

Creation of Wealth

Private property, private ownership, Intellectual property, Legal system protection for private property

All factors of production are present.

Land, labor, capital, and entrepreneurship

Having the relative information and the incentive to act on the decision

A plot where the business is located

Human workers for the business (workers and managers)

Machinery, tables, chairs, etc.

The owner of the business

changing

Government determines the goods and services produced in a communism market.

Households determine the goods and services produced in a free market by the dollar value.

Teaches people to work more (capitalism)

Teaches people to demand more (socialism)

Different perceptions of life will lead to disagreement. To combat bias, surround yourself with people who disagree with you.

Terms that contain the prejudice and value judgments of others

If one thing occurred after another, the first thing caused the second thing.

What's good for one sector of the economy is good for ALL sectors of the economy

A and B may be correlated, but it doesn't mean A caused B.

A type of economics that focuses on facts and cause-and-effect relationships. Mainly numbers and is backed up with data.

A type of economics that focuses on the ideological, opinion-oriented, perspective, value judgements

Market for goods and service --> Households --> Factor Markets --> Firms --> Market for Goods and Services

Changes in prices of related goods or services

Change in Income

Change in tastes

Change in expectations

Changes in the number of consumers

an increase in the price of one causes an increase in demand for the other

an increase in the price of one causes a decrease in demand for the other

Input prices

The prices of related goods or services

Technology

Firm expectations

The number of producers

movement along the curve

increase in supply, but decrease in demand by shifting the demand curve.

Demand curve shifts to the right, supply curve shifts to the left

Demand curve shifts to the left, supply curve shifts to the right.

consumers

Where the supply and demand curves intersect

When the supply exceeds the demand. Usually above the equilibrium.

When the supply is lower than the demand. Usually below the equlibrium.

Lower the price to increase demand.

Sellers increase the price to lower the demand and increase revenue.

Diminishes the price point when consumers increase the quantity they want to buy.

As the quantity increases for every additional unit, it goes up.

By measuring consumer and producer surplus

The difference between market price and what consumers would be willing to pay

Measured by the area beneath the demand curve and above the equilibrium price

half the base times height

There's an increase in price

There's a decrease in price

The difference between the market price and the price at which firms are willing to supply the product

There is a decrease in price

There is an increase in price

The price when nobody buys the product

A demand curve written in the form of price as a function of quantity demanded

A supply curve written in the form of price as a function of quantity supplied

The sum of consumer and producer surpluses. The maximum surplus when we are most efficient.

Lost surplus when the quantity goes down.

Set both inverse demand and supply equations equal to each other to find Q, then find the area of the small triangle that is formed by the curves and line.

Property rights and economic signals

The rights of wonders of valuable items whether resources or goods, to dispose of those items as they choose.

Any piece of information that helps people make better economic decisions

A situation where one party to a market transaction has much more information about a product or service than the other.

Hiring process, bank underwriting loans, health insurance

under or over allocation of services.

describes the efforts of the less informed party

describes the efforts of the more informed parties to reveal information about themselves to the less informed party

When we are the sole provider of the good, and are the one entity providing a good or service

The primary mechanism that market participants use to communicate with one another.

pay

sell

Legal restrictions on how high or low a market price may go

A maximum prices sellers are allowed to charge for a good or service.

under

shortages

chronic shortages

lower quality products

black markets

Rent Control: The government places a limit on how much a landlord can charge on tenants

Before price ceiling, there is a consumer and producer surplus.

After the price ceiling is set under the equilibrium and the triangle where the consumer and producer surplus is cut at the intersection of the supply curve and the price ceiling.

The market is considered ineffective

Inefficiently low quality

Inefficient allocation to customers

Wasted resources

Black market

A minimum price buyers are required to pay for a good or service

above

surpluses

minimum wage laws

On price floors, there is more supply than demand at that price point, hence a surplus.

The difference between points where the supply and demand curve intersects with the price floor.

(where demand and price floor intersect) - (where supply and price floor intersect)

Deadweight loss from inefficiency low quantity

Inefficient allocation of sales among sellers

Wasted resources

Inefficiently high quality

Temptation to break the law by selling below the legal price

The productions of any particular good in the least costly way

Producing the combination of goods and services that are most highly valued by society

Distorted price signals causing resources to be misallocated. If prices are distorted then they cannot give good information to buyers and sellers.

Demand increases when income increases and vice versa

Demand increases when income decreases, and vice versa.

canned goods, fake jewelry

Depending on the season, tastes and preferences can vary among consumers. The market can also target a specific demographic.

When consumers have a choice about the timing of a purchase, they buy according to those expectations.

Example: If prices for XBOX 360s are expected to drop right before Christmas, there will be less sales in November.

An Individual Demand Curve represents the price-quantity combination of a particular single buyer.
A Market demand curve represents the price-quantity combination of a good for all buyers.

As the price decreases, quantity decreases, and vice versa.

As the price decreases, quantity increases, and vice versa.

As the population of an economy changes, the number of buyers of a particular good also changes. Example: The demand for diapers in Russia drops as the birth rate drops.

Change in supply or demand refers to a shift in the curve while the change in quantity refers the movement along the curve.