Microeconomics Test 1 ASU Ramirez De La Vina

paychecks

ex: cars, apartments

the limited nature of society's resources

land, labor, capital, time, entrepenurship

The study of how people interact with one another. It's about how people make decisions.

study of hoe households and firms make decisions and how they interact in specific markets.

study of economy-wide phenomena. including inflation, unemployment, and economic growth

most closely relates to our everyday lives. How people make decisions. What they buy, how much they work, how they trade. How people interact with one another. How buyers and sellers determine the price and quantity of a good or service. \

rational people, systematically and purposefully do the best they can do to achieve their objectives. Takes action only if benefits outweighs the costs

is to change behavior a little bit (up/down) based on self interest. ex: driving on the freeway. Time is valuable, Police? Speed? Camera? Time?

who thinks on the margin

Is what you have to give up in order to get something else.

Making decisions requires comparing costs and benefits of alt. choices. Whatever is GIVEN UP to obtain an it. Relevant cost for decision making.

allows for a variety of goods, allows each person to specialize in activities he/she does best. Enjoys a greater variety of goods and services at lower cost

individuals make decisions that are in their best interest

choices that are made to benefit society as a whole

no free market: price is not how goods are distributed

change when the government intervenes. ex: it might not be worth it to produce certain goods any longer because MR and MC have changed

study of D. Trade offs, when making decisions.

deals with the concept of scarcity

The phenomenon of scarcity stems from the fact that

a marginal change

What is this an example of? Dani must decide between going to Florida or Brazil for spring break.

group of buyers and sellers of a particular good or service

function that shows the quantity demanded at different prices

is a table that shows the quantity demanded at each price

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

as the price of a good or service goes up (down) the quantity demanded for that good or service goes down (up)

consumers gain from exchange, or the difference between the max price a consumer is willing and able to pay and the market price

1. Tastes and Preferences
2. Number of Consumers
3. Price of Related Goods
4. Income
5. Future Expectations

is a good for which demand increases when income increases.

is a good for which demand decreases when income increases.

goods that are similar for the consumer Ex: coke versus Pepsi, BMWs versus Mercedes, Adidas versus Nike, etc. A decrease in the price of one good leads to a decrease in demand for the other good

Things that go well together. Ex: phone and phone case, printer and ink, hotdog and bun. A decrease in the price of one good leads to an increase in demand for the other good

Tastes
Related goods
Income
Buyers
Expectations

What happens when a price of a good is decreased

A movement downward and to the right along a demand curve is called a (n)

when quantity demanded decreases at every possible price, the demand curve has..

a function that shows the quantity supplied at different prices

a table that shows the relationship between price and quantity supplied

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

as the price of a good/ service goes up (down). the quantity supplied for that good or service goes up (down)

1. Prices/availability of inputs (resources)
2. Number of producers
3. Technology
4. Government action: taxes & subsidies
5. Expectations of future profit

form of financial aide or support extended to an institution, business, or individual

R esource costs (changes in the price of inputs)
O pportunity costs
T echnological Innovation
T axes and Subsides
E xpectations
N umber of sellers (entry and exit of producers)

a decrease in price of a good will decrease quantity of supply

what law states that other things equal, when the price of a good rises, the quantity supplied of the good rises

lead is an important input in crystal, if the price of lead decreases, then we would expect the supply of crystal to increase

corn is an input in ethonal. You would expect supply curve to shift leftward

a improvement in production in technology will shift the supply curve to the

today producers changed their expectations about the future. What can this change effect? It can affect todays (supply or demand)

If the number of sellers in a market increases then the supply will increase

quantity demanded + the quantity supplied

what happens when surpluses are present

what happens when shortages occur, sellers have the incentive to

a measure of how much a variable (P) changes in percentage

(end value- start value) / start value * 100

the elasticity of ( ) measures how responsive the quantity () is to change in price (p)

what does more responsive mean when when referring to elasticity

insulin is

cruises are

" " along, a D curve, P and Q move in opposite directions, which would make price elasticity negative, we will use absolute value of a solution.

% change in quantity demanded / % change in price or (change in QD/AV qD)/(change in P/Average of P)

measures how much the quantity demanded responds substantially to changes in the price.

when there is an availability of close substitutes, would that be more or less elastic?

Necessities versus luxuries tend to be more elastic or less elastic?

time horizon- more or less elastic?

Luxury= more

with __________, elasticity = 0

with __________ elasticity is less than 1

with __________ elasticity equals 1

with ________________ elasticity is greater than 1

with ______ demand, elasticity equals infinity

% change in quantity demanded / % change in income

% change in quantity of A demanded / % change in price of B

When the price of a good is higher than the equalibrium price sellers will produce and sell ____________ than buyers wish to purchase (more or less)

(T/F) In markets, prices move toward equilibrium because the action of buyers and sellers.

Less Elastic: Fewer substitutes, short run (less time), category of products, and necessities
More Elastic: More substitutes, long run (more time), specific brands, and luxuries

Breakfast cereal or sunscreen?
The prices of both of these goods rise by 20%. For which good does Qd drop the most? Why?

Insulin versus Cruises
The prices of both these goods rise by 20%. For which good does Qd drop the most? Why?

Blue Jeans vs Clothing
The prices of both these goods rise by 20%. For which good does Qd drop the most? Why?

Gasoline in the short run vs gasoline in the long run. The price of gasoline rises by 20%. Does Qd drop more in the short run or the long run? Why?

Is the firms total sales of a product. It can be calculated as the selling price of the firms product times quantity sold

Price x Quantity

(T/F) Normal goods income elasticity >0

(T/F) for inferior goods, income elasticity is >0

1. Effects on rent control on housing in NYC
2. Impact on foreign competition in US auto industry
3. Effects of compulsory school attendance on workers earnings
4. Impact of regulation, limiting how much a farmer can charge for apples.
5. Hoe much more output will be produced if another worker is hired

1. Effect of borrowing by the federal government
2. Changes over time in the economy's rate of unemployment
3. policies to promote growth in national living standards
4. Growth in GDP or national income

The flatter the curve, the bigger the elasticity. The steeper the curve, the smaller the elasticity.

(T/F) for substitutes, cross-price elasticity >0

(T/F) for complements, cross-price elasticity <0

a measure of how much buyers and sellers respond to changes in market conditions

What is not a determinant of the price elasticity of a demand of a good

If price goes down, then revenue goes (up or down)

the percentage change in quantity demanded divided by the percentage change in price

Demand is said to be price elastic if buyers (respond/ don't buy) substantially to changes in the price of the good.

what consumers want

shows consumption bundles that give the consumer the same level of satisfaction

1. indifference curves are downward sloping (in the example: if quantity of food is reduced, the quantity of clothes must be increased to keep John equally happy)
2. Higher indifference curves are preferred to lower ones ( ex: John prefers every bundle on I1 (like C) to every bundle on I1 (like A). He prefers every bundle on 1, to every bundle on I0)
3. Indifference curves cannot cross!!
4. Indifference curves are bowed inward. (ex- John is willing to give up more clothes for a good is he has few food )

The rate at which a consumer is willing to trade one good for another

what the consumer chooses

The point on the budget constraint that touches the highest possible indifference curve.

giffen goods, rare or common?

(Higher/lower) indifference curves are preferred

indifference curves are _______ sloping

Indifference curves (can/cannot) cross because its assumed that a consumer always prefers more of both goods

indifference curves are bowed _______