Exam 1 Study Guide, ECN 211
Exam 1 Study Guide, ECN 211 ECON 211 (Principles of Economics)
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ECON 211 (Principles of Economics)
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This 6 page Study Guide was uploaded by Rachel Busch on Monday February 1, 2016. The Study Guide belongs to ECON 211 (Principles of Economics) at Arizona State University taught by Stefan Ruediger in Winter 2016. Since its upload, it has received 247 views. For similar materials see Macroeconomics in Economcs at Arizona State University.
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Date Created: 02/01/16
Study Guide Exam 1 What is Economics? -“The study of choices under conditions of scarcity” Scarcity: “The limited nature of society’s resources” Resources: Goods and services that are allocated or sacrificed when a trade off is faced. Four types: 1. Land: Physical space of Production or Natural resources 2. Labor: Time humans spend producing goods and services. (Easiest Factor of Production to change) EX: Barista in a Cafe 3. Capital: HUMAN (skills, training) or PHYSICAL (stock, factories) 4. Entrepreneurship: “Combo of all 3; willingness and ability to combine resources Opportunity Cost: “Whatever must be given up to obtain some item”. Expresses relationship between scarcity and choice. Trade-Offs: What good you must give up to obtain the other. Ex: “Guns and Butter”; The more money a nation spends on defense (“guns”), the less it can spend on consumer goods (“butter”) Unemployment: Quantity of money, level of spending, demand, and level of employment are related and have been the incentive for government involvement. Ex: Increase money supply = Higher level of spending = Higher demand = Firms hire more workers (Lower unemployment rate) Efficiency and the Production Possibility Frontier (PPF) -The PPF shows the combinations of two goods the economy can possibly produce given the available resources and the available technology. Points ABOVE the the PPF= NOT Points BELOW the PPF: Possible, possible due to insufficient but not efficient resources -The opportunity of a good rises as more of a good is produced, causing the shape of the PPF to be “Bow Shaped” - Law of Increasing Opportunity Cost : As you get more efficient at producing a good, the opportunity cost of the other good increases. Technological change and Economic Growth and the PPF: -The Production Possibilities Frontier shows the trade off between the outputs of different goods at a given time, but the trade off can change over time. -The slope of the PPF measures the opportunity cost between producing two goods -Technological advancement can expand society’s set of opportunities, thus shifting the PPF outward. Shifts of the PPF: -Technology making production more efficient. Ex: The improvement of a harvester produces better seeds for the production of wheat, thus shifting the PPF outward Principles of specialization and exchange: -Trade allows both parties to to consume more goods without spending more time or resources -Trade allows the exchange of two items at quantities that would be impossible to obtain in the absence of trade Comparative Advantage: Absolute Advantage: The Ability to produce a good at a ability to produce a good with lower opportunity cost than fewer inputs than another another producer producer. Absolute Advantage is NOT NECESSARY for Comparative Advantage Law of demand: As Price increases, Quantity Demanded Decreases Quantity demanded: Amount of a good buyers will buy at a particular price given the constraints they face Demand curve shifters 1)Income 2)Wealth 3)Price of Related Goods 4)Increase in Population 5)Expected Prices 6)Taste/Preferences 7)“other” (ex: Government Subsidies) Law of Supply: As the Price of a good Increases, the Quantity of a good increases Quantity supplied and supply: The amount of a good that sellers would choose to sell at a particular price given the constraints they face Supply curve shifters: 1)Input Prices 2)Price of Alternatives 3)Technology 4)Increased # of Firms 5)Expectations 6)Weather/Natural Events 7)“other” (ex: Government tax) Market equilibrium: The point in which Supply and Demand intersect. The actions of buyers and sellers naturally move markets toward equilibrium. Joint shifts of Supply and Demand: -Two different outcomes in price and quantity can occur in the new equilibrium. The magnitude in each supply and demand determines the position of the new equilibrium. -Ex 1: A large increase in Demand and a small increase in Supply can cause a rise in both price and quantity in the new equilibrium. -Ex 2: A Small increase in Demand and a large decrease in Supply can cause a rise in price and a fall in quantity in the new equilibrium. -No matter what the magnitudes of the Supply and Demand curve shifts are, when both curves decrease, the equilibrium quantity must decrease
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