Exam 1 Study Guide
Exam 1 Study Guide ECON 2010
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This 5 page Study Guide was uploaded by Ashley Gearhart on Thursday February 4, 2016. The Study Guide belongs to ECON 2010 at Clemson University taught by Espey in Spring 2016. Since its upload, it has received 78 views. For similar materials see Principles of Economics: Microeconomics in Business at Clemson University.
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Date Created: 02/04/16
Exam 1- ECON Opportunity cost: the highest valued alternative that must be sacrificed as a result of choosing an option Market Exchange: highly organized market where brokers and traders buy and sell securities Transaction costs: the time, effort, and other resources needed to search out, negotiate, and complete an exchange Middleman: a person who buys and sells goods or services or arranges trades. A middleman reduces transaction costs Property rights: the rights to use, control, and obtain the benefits from a good or service Production possibilities curves: a curve that outlines all possible combinations of total output that could be produced, assuming (1) a fixed amount of productive resources (2) a given amount of technical knowledge (3) full and efficient use of those resources. The slope of the curve indicates the amount of one product that must be given up to produce more of the other Investment: the purchase, construction, or development of capital resources, including both nonhuman capital and human capital. Investments increase the supply of capitol. Technology: the technical knowledge available in an economy at any given time, the level of technology determines the amount of output we can generate with our limited resources Innovation: the successful introduction and adoption of a new product or process, the economic application of inventions and marketing techniques Entrepreneur: a person who introduces new products or improved technologies and decides which products to undertake. A successful entrepreneur’s actions will increase the value of resources and expand the size of the economic pie Demand: there is an inverse (negative) relationship between the price of a good or service and the quantity of it that consumers are willing to purchase, price goes up consumers purchase less, price goes down consumers will supply less Supply: there is a direct (positive) relationship between the price of a good or service and the amount of it that suppliers are willing to produce want it to move in the same direction, price goes up producers will supply more price goes down will supply less Compliments: two or more goods that satisfy wants or needs when consumed jointly Substitutes: buy one or not the other; two or more goods that satisfy the same want/need Profit: an excess of sales revenue relative to the opportunity cost of production; the cost component includes the opportunity cost of all resources, including those owned by the firm. Therefore, profit occurs only when the value of the good produced is greater than the value of the resources used for production Loss: a deficient of sales revenue relative to the opportunity cost of production. Losses are a penalty imposed on those who produce goods even though they are valued less than the resources required for their production Market: an abstract concept encompassing the forces of supply and demand and the interaction of buyers and sellers with the potential for exchange to occur Market Equilibrium: when demand and supply are in balance, quantity demand=quantity supplied Excess Demand: when price is set below equilibrium price Excess Supply: quantity of a good or service supplied is more than the quantity demanded Functions of prices: when resources are scarce, demands exceeds supply and prices are driven up. The effect of price rise is to discourage demand and conserve resources Economic Efficiency: a situation that occurs when (1) all activities generating more benefit than cost are undertaken and (2) no activities are undertaken for which the cost exceeds the benefit 1. Complete private property rights include the right to: exclusive control by the owner or owners, transfer ownership to others, protection by legal enforcement 2. Opportunity cost: the value of the next best option forgone as a result of a choice 3. Production possibilities curve: it illustrates the combinations of two goods that can bee produced from a fixed quantity of resources 4. When an economy is operating efficiently, the production of more of one good will result in the production of less of some other good because: resources are limited and efficiency implies that they are already in use 5. Keri decides to sleep in today rather than attend her 9:05 economics class. According to economic analysis, her decision is: rational if Keri values sleep more highly than the benefit she expects to get from attending class 6. Economic efficiency requires that: all economic activity generating more benefits than costs to individuals in the economy be undertaken 7. Price is important in a market economy because it: coordinates the choices of consumers and producers, serves as a rationing mechanism for the limited supplies of goods and services, eliminates imbalances between supply and demand 8. Factors that influence demand include: income 9. An important assumption that is made when constructing a supply curve is that: all other determinants of supply are held constant 10. The curve that shows the relationship between the price of a good or service and the quantity that consumers are willing and able to buy at each price is the: demand curve 11. If the price of a good were set below the equilibrium price: the quantity of the good demanded would be greater than the quantity supplied 12. High transaction costs will tend to: reduce the number of mutually beneficial exchanges to occur 13. According to the law of supply as the price of a good decreases: sellers will produce less of the good 14. With voluntary exchange: both the buyer and the seller will be made better off 15. Which of the following is a transaction cost? Time spent standing in line to buy the ticket Positive analysis: fact based, descriptive ex. Would, will Normative analysis: opinion based, prescriptive ex. Should Quantity demanded: one thing Demand: two complimentary things Normal goods: anything you buy more of when income goes up, goods for which demand goes up as income goes up and demand goes down as income goes down. Ex. Smart phones Inferior goods: goods for which demand goes up as income goes down and demand goes down as income goes up ex. Flip phone, spam Economics: the study of the allocation of scarce resources among unlimited wants, all about costs and benefits Command Economy: government determines allocations Market economy: individual producers and consumers determine allocations based on individual values& costs Microeconomics: focuses on individual consumers and producers and individual markets Macroeconomics: focuses on the overall economy (GDP, inflation, employment) Economic rational: do things for which b>c on the margin Production possibilities curve (PPF): Opportunity cost, efficiency, choices Shows the combinations of two goods that can be produced given existing resources and technology Technology defines what the trade offs b/w outputs will be Investment goods increase production possibilities in the future Markets: any arrangement that enables the exchange of goods/ services Factors that influence consumption: price of the good, income, price of subsidies, tastes& preferences, quality of the product, natural disasters/crisis, wealth, expectations of future prices and income Demand: the relationship between the price of a good and the amount consumers are willing and able to buy at each price in a given time Quantity demanded: point D on curve, amount consumers are willing and able to purchase at a particular price Factors that influence production: price of the product, technology, and production costs, number of producers, expectations of future prices Supply: the relationship between the price of a good and the amount producers are willing and able to sell at each price in a given time Quantity supplied: point on S curve, amount producers are willing and able to sell at a particular price Law of supply: all else constant as price goes up quantity supplied goes up and as price goes down quantity supplied goes down Law of Demand: all else constant as price goes up and quantity demanded goes down and as price goes down and quantity demanded goes up Ceiling- max price allowed Shortage= Qd-Qs Surplus=Qs-Qd
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