Exam 1 Study Guide ECON2010
Exam 1 Study Guide ECON2010 ECON 2010
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This 2 page Study Guide was uploaded by Andrew Helton on Saturday February 6, 2016. The Study Guide belongs to ECON 2010 at Western Michigan University taught by William Kern in Winter 2016. Since its upload, it has received 179 views. For similar materials see Principles of Economics: Microeconomics in Economcs at Western Michigan University.
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Date Created: 02/06/16
ECON2010 Exam 1 Study Guide There is no solution to scarcity, and scarcity is caused by limited resources such as land, labor, and capital. Entrepreneurial Ability The ability to accept or tolerate risks, as well as recognizing profitable opportunities and taking action. Scientific Method The systematic pursuit of knowledge by observing facts and formulating and testing hypotheses to obtain theories, principals, and laws. *Microeconomics examines individual households, customers, and businesses, while macroeconomics examines the economy as a whole. *Budget Line A line that shows various combinations of two products a consumer can purchase with a specific income given the products prices. Production Possibilities Curve A curve showing the different combinations of goods and services that can be produced in a fully employed economy. Economic growth can be caused by a number of factors including technological advances, an increase in resource supply, or an adoption of growth supporting policies. *A command system (Socialism/Communism) is an economic system where the government controls most or all of the economic decisions. *Whereas a market system (Capitalism) businesses and resources are mostly privately owned and market prices direct economic activity. Self Interest The most advantageous outcome as viewed by each firm, property owner, worker, or consumer. Specialization The use of resources of an individual, region, or nation to produce on one or a few goods and services rather than an entire range of goods and services. The price and quantity of a good or service is determined by its supply and demand. *Law of Demand The principle that other things equal, as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls. Some of the most common determinants of demand are consumer preferences, their incomes, how many consumers there are, the prices of substitute goods, and expected future prices. *A change in demand results in a shift of the demand curve, whereas a change in quantity demanded results in a movement along the demand curve or a change in price. *Law of Supply The principal that all other things equal, as price rises, quantity supplied rises, and as price falls, quantity supplied falls. Some of the most common determinants of supply include resource prices or availability, available technology, taxes or subsidies provided by the government, prices of substitute goods, the goods expected future price, as well as how many sellers there are. *A change in supply results in a shift of the supply curve, whereas a change in quantity supplied results in a movement along the supply curve or a change in price. Equilibrium Price The price in a competitive market in which the quantity demanded and the quantity supplied are equal. Equilibrium Quantity The quantity demanded and supplied that occur at the equilibrium price. Surplus The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific price. Shortage The amount by which the quantity demanded of a product exceeds the quantity supplied at a specific price. Governments can also set price floors (Minimum Prices) and price ceilings (Maximum Prices) on certain goods. Elasticity is a measure of the markets responsiveness to price changes. *Elastic Demand Product demand for which price changes cause relatively larger changes in quantity demanded. *Unit Elasticity Product demand for which relative price changes and changes in quantity demanded are equal. *Inelastic Demand Product demand for which price changes cause relatively smaller changes in quantity demanded. Elasticity of Demand=(∆Quantity Demanded/Quantity Demanded)/(∆Price/Price) The main determinants of elasticity include the availability of substitutable goods, the percentage of a consumer’s budget spent on the item, timing, and whether the good is a luxury or not. Total Revenue= Price X Quantity Demanded and Sold Elasticity of Supply=%∆ of Quantity Supplied/%∆ of Price *Market Period A period in which producers of a product are unable to change the quantity produced in response to a change in price. *Short Run A period in which producers are able to change the quantities of some but not all the resources they employ. *Long Run A period long enough to enable producers of a product to change all the resources they employ.
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