Econ 111 Unit 1 Study Guide Zirlott
Econ 111 Unit 1 Study Guide Zirlott EC 111
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This 5 page Study Guide was uploaded by Conner Jones on Tuesday February 9, 2016. The Study Guide belongs to EC 111 at University of Alabama - Tuscaloosa taught by Zirlott in Spring 2015. Since its upload, it has received 169 views. For similar materials see Principles of Macroeconomics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 02/09/16
EXAM 1 OUTLINE Ch. 1 Principles of Economics 1. Def. and Concepts. a. What is the study of economics? How society manages its scarce resources b. What is microeconomics and macroeconomics? Microeconomics is study of economics on a small scale such as individuals and corporations. Macroeconomics is study of economics on a much larger scale like global markets c. What is equality (equity)? What is scarcity? Equity is being fair and impartial. Scarcity happens when there is not enough of a certain resource d. What is efficiency? Producing the most goods/services with the inputs you have e. What are tradeoffs and opportunity costs? what you give up to gain another of something else. f. How do you measure opportunity costs? Calculate what must be given up of good A to receive another of good B. ex:Country A can produce 25 tons of beef or 50 tons of corn. Country A’s opportunity cost to produce another ton of beef is 2 tons of corn g. What is rationality and thinking at the margin? Meaning you are always thinking about your next few steps forward and not just about the present h. Benefits of trade? Everyone can benefit from trade by specializing in what they are most efficient at making i. What is a market and market economy? any platform where goods and services are sold j. What is the “invisible hand”? describe unintended social benefits resulting from individual actions k. What is a market failure? When the present allocation of goods/services is not efficient Ch. 2 Thinking like an Economist 1. Def. and Concepts. a. What are models? Something that shows variables and the relationships between them, ex: tradeoffs between good A and good B b. Characteristics of the Circular Flow Diagram. Shows the money flow throughout a market through households and firms c. How does the Circular Flow Diagram work? Who are its “actors” and what do they do? What are the two markets? Represents money as it travels from one person to another, the firms hire workers from the households which in turn purchase goods/services from the firms. d. What are the factors of production and the payments to them? Land, labor, capital, entrepreneurship e. Characteristics of the Production Possibility Frontier (PPF). Curve showing max output possibilities for two goods f. How does the PPF work? What does it tell us? Move along the curve to see what is the most logical and efficient way to distribute inputs to get the most output g. Increasing and constant opportunity costs and how they affect the shape of the PPF. PPF is bowed because of increasing opportunity costs h. What causes the PPF to shift or pivot outward? And what would be the result of the shift? If there is a change in technology that would cause more inputs to be available resulting in the bowed curve being shifted outward i. Normative vs. Positive statements normative statements are opinions and positive statements are facts that can be tested Ch. 4 Supply and Demand (KNOW EVERYTHING IN THIS CHAPTER) 1. Def. and Concepts. a. Difference between Demand and Quantity Demand (QD) and how they appear on a graph. Demand is the relationship between price and demand (demand curve) quantity demanded is a point on demand curve b. How do you create a market demand curve? Demand on one axis price on other, shows the maximum price to charge to get maximum profit c. What is the Law of Demand? All other things equal as price increases, demand falls d. Difference between moving along a demand curve and shifting a demand curve. Moving along curve is changing price. Shifting curve is a result of change in taste, technology, etc. e. Difference between “Change in Demand” and “Change in Quantity Demanded”. Change in demand is a change in what they demand and change in quantity demanded is a change in how much said consumer demands f. What causes a movement along the demand curve? (Remember, if you move upward along a demand curve, that is a decrease in quantity demanded. If you move downward along a demand curve, that is an increase in quantity demanded.) change in price g. What causes a shift of the demand curve? (Remember, if the demand curve shifts to the right, that is an increase in demand. If the demand curve shifts to the left, that is a decrease in demand.) change in technology, taste, change in price of substitute/compliment, etc. h. What are the Determinants of Demand and how a change in them will shift the demand curve? Factors that determine consumers demand such as income. Increase in income will increase demand for normal goods i. Normal vs. Inferior Good? Normal goods demand rises with rise in income. Inferior goods demand falls with rise in income j. Substitutes vs. Complements? Substitute is something that can replace good A. compliment is something that goes with good A k. Difference between Supply and Quantity Supplied (QS) and how they appear on a graph. Supply is what is supplied and quantity supplied is how much of it is supplied l. How do you create a market supply curve? supply on one axis and price on other, shows relationship of the two m. What is the Law of Supply? all else equal, an increase in price results in an increase in quantity supplied n. Difference between moving along a supply curve and shifting a supply curve. Moving along curve is changing price. Shifting curve is a result of change in technology, price of competitors, etc. o. Difference between “Change in Supply” and “Change in Quantity Supplied”. Change in supply is a change in what they supply and change in quantity supplied is a change in how much said producer supplies p. What causes a movement along the supply curve? (Remember, if you move upward along a supply curve, that is an increase in quantity supplied. If you move downward along a supply curve, that is a decrease in quantity supplied.) change in price q. What causes a shift of the supply curve? (Remember, if the supply curve shifts to the right, that is an increase in supply. If the supply curve shifts to the left, that is a decrease in supply.) change in price of inputs for producers r. What are the Determinants of Supply and how a change in them will shift the supply curve? Production cost, technology, number of sellers, future expectations 2. Supply and Demand Together. a. What is an Equilibrium? When the supply in the market is equal to the demand in the market b. How do you determine equilibrium price and quantity? (Both on a graph and mathematically.) where the two lines intersect c. Shortage vs. Surplus? Shortage is not enough goods for the consumers, surplus is too many goods that wont sell to the consumers d. What happens to the equilibrium price and quantity if the supply curve shifts, if the demand curve shifts, or if both supply and demand shift? Supply decreases, price will rise, quantity will fall. Supply increases price will fall quantity will rise. Demand increases price will rise quantity will rise. Demand decreases price will fall quantity will fall Ch. 5 Elasticity 1. Def. and Concepts a. What is price elasticity of demand? show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price b. Calculating price elasticity of demand using the midpoint method. (Change in quantity/average quantity) / (change in price/average price) c. Why is the midpoint method better for calculating elasticity? It shows how responsive the demand for a good is when price changes, used to determine maximum price to gain max profits. d. Relationship between slope and elasticity. The more horizontal the slope is, the more elastic. The more vertical the slope, the more inelastic e. The 5 types of elasticity of demand and their characteristics and examples. i. Perfectly elastic- horizontal slope ii. Perfectly inelastic- vertical slope iii. Relatively elastic- gentle upward slope iv. Relatively inelastic- steep upward slope v. Unit elastic- slope of 1 f. Determinants of Elasticity of Demand and how they affect the shape of the demand curve. Goods with close substitutes have higher elasticities. The more necessary a good is the more inelastic the good is g. Relationship between Total Revenue and Elasticity of Demand. Ifproduct has elastic demand, you can increase your revenue by decreasing the price of that good. If product has inelastic demand you can increase revenue by increasing price h. What is price elasticity of supply? (Remember, you will not have to calculate elasticity of supply on the exam.) (% change in quantity supplied) / (% change in price) i. The 5 types of elasticity of supply and their characteristics and examples. i. Perfectly elastic- horizontal slope ii. Perfectly inelastic- vertical slope iii. Relatively elastic- gentle upward slope iv. Relatively inelastic- steep upward slope v. Unit elastic- slope of 1 j. Determinants of Elasticity of Supply. Availability of inputs, inventories, etc. k. Income Elasticity of Demand and what it is used for. (Remember, you will not have to calculate income elasticity on the exam.) Why is the sign of the elasticity important? measures the responsiveness of the quantity demanded for a good or service to a change in the income. Important so business can know how much to charge based on income of consumers l. Cross-Price Elasticity and what it is used for. (Remember, you will not have to calculate cross-price elasticity on the exam.) Why is the sign of the elasticity important? measures the responsiveness of the quantity demanded for a good to a change in the price of another good.
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