Economics 201 exam 1 study guide
Economics 201 exam 1 study guide Econ 201
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This 3 page Study Guide was uploaded by Katie Conner on Saturday February 6, 2016. The Study Guide belongs to Econ 201 at a university taught by Donna Bueckman in Spring 2016. Since its upload, it has received 113 views.
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Date Created: 02/06/16
Economics 201 Bueckman TERMS & TOPICS – Exam 1 Scarcity limitation of resources Economicsthe study of how people make decisions when dealing with scarcity Tradeoffwhen you give up one thing to have more of another Organize economic activitymanaging scarce resources; determines what to produce, how to produce it, and who will get it Economic systemsincludes different types of economies and the models of how they work Traditional economyfollows traditional ways of doing things but may not be the most efficient way to do it Command economy trickledown dictator type Market economyrun by supply and demand, decentralized decision making, division of labor (assembly lines) and production capability, marketers organize economic activity through price, selfinterest drives decisions Division of laborassembly line; everyone has a part they do to contribute to the whole product Adam Smith The Wealth of Nations 1776, considered the father of economics and promoted decentralized decision making Invisible hand what leads people to make economic decisions based on their own personal wants Deductive reasoningusing simplified assumptions Assumptionssomething that simplifies the complexity of things Modelssimplified representation Circular flow modelvisual model of the economy, it shows how dollars flow through markets among households and firms Householdsgets income and spends it on goods and services and uses those goods and services towards labor, capitol, and land Firmsgets revenue from the households buying their goods and services and it goes towards wages, rent, and profit and uses production to make goods and services Market for goods/servicesgoods and services that people buy Market for factors of productionwhat businesses that provide goods and services spend money on Microeconomicsfocuses on individual decision makers Macroeconomicsfocuses on the economy as a whole Roles of an economist: Scientisttries to explain things Policy advisortries to give advice to improve or change policies Positive statementsdescribes something as it was, is, or could be based on knowledge of past Normative statementssays how something should be Opportunity costwhat must be given up to have something else (not money) Production Possibilities Frontier (model)visual model of scarcity, tradeoffs, and efficiency given the available resources and technology PPF shape Lineartheoretical shape of PPF if cost is constant Curved – increasing opportunity costactual shape of PPF as the economy produces more or less of the product and the price changes Resource specializationgives the PPF a bow shape PPF topics Tradeoff Opportunity cost Efficiency Productiveon the PPF and technically efficient but may not be the most efficient Allocativewhere society wants to be on the PPF (most efficient) Trade between two countries Consumption v. production positionscountries can specialize in producing one good and trade it with other countries for their goods Exportsgoods produced domestically and sold abroad Importsgoods produced abroad and sold locally Absolute advantageability to produce a good using fewer inputs than another producer Comparative advantageability to produce a good at a lower opportunity cost than another producer Reasons why a country may choose not to trade: they may have the absolute/comparative advantage in a good Marketanything that brings buyers and sellers together Competitive marketmarket with multiple buyers and sellers Perfectly competitive marketbuyers and sellers don’t influence price Marginal analysismaking incremental adjustments to an existing plan Ceteris paribus – other things equal Demand Law of Demandclaim that the quantity demanded of a good falls when its price (P) rises; when price changes demand will change Quantity demanded amount of a product wanted at a given price Demand schedule list of prices and quantities Demand Curve graph of demand schedule Demand Curve Shifters: Number of buyers, Income, Prices of related goods, Tastes, expectations Normal goodsas income goes up, demand goes up Inferior Goodsas income goes up, demand goes down Substitutes in consumptionwhen price for one goes up, the demand for its substitute goes up Complements in consumptionwhen price for one goes up, demand for its compliment does down (ex: tennis racket prices increase, demand for tennis balls decrease) Shift vs. Movement along Curve Change in demanda shift on the PPF curve from nonprice determinant changes Change in the quantity demandeda movement on the fixed curve when price changes Supply Law of supplyquantity supplied of a good rises when its price rises Supply Schedulemarket supply vs individual supply Supply Curve Shifters: Number of sellers, Input prices, Technology, Expectations, Government policy, “Natural” Production conditions, Substitutes in production Shift vs. Movement along Curve Change in supplya shift in the curve Change in the quantity supplieddetermined by a change in price
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