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ECON 1113 Exam 1 study guide

by: Aubrie Bowlan

ECON 1113 Exam 1 study guide ECON 1113

Marketplace > Oklahoma State University > Economcs > ECON 1113 > ECON 1113 Exam 1 study guide
Aubrie Bowlan
OK State
GPA 3.86

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These are the key points (Which are almost all vocab) for our first exam covering Chapters 1, 2, 3, 4, and 8.
Economics of Social Issues
Joseph Mclean
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This 6 page Study Guide was uploaded by Aubrie Bowlan on Wednesday February 10, 2016. The Study Guide belongs to ECON 1113 at Oklahoma State University taught by Joseph Mclean in Spring 2016. Since its upload, it has received 37 views. For similar materials see Economics of Social Issues in Economcs at Oklahoma State University.

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Date Created: 02/10/16
ECON 1113 Exam 1 study guide Ch. 1: Opportunity Cost ­Economics: The study of the allocation and use of scarce resources to satisfy unlimited human wants ­Scarce: When there is not a freely available and infinite source of it. ­Resource: Anything we either consume directly or use to make things we will ultimately consume ­Four resources that society can allocate: land, labor, capital, entrepreneurship of its  people ­Opportunity cost: The forgone alternative of the choice made ­Production possibilities frontier: A graph which relates the amounts of different  goods that can be produced in a fully employed society ­Model: A simplification of the real world that can be manipulated to explain the real  world ­Simplifying assumption: An assumption that may, on its face, be silly but allows for a  clearer explanation ­Unemployment: A situation that occurs when resources are not being fully utilized ­Attainable: Levels of production that are possible with the given resources ­Unattainable: Levels of production that are not possible with the given resources ­Good: Anything we can consume ­If the production possibilities frontier is bowed out away from the origin, then opportunity cost is increasing.  ­If the production possibilities frontier is a straight line that is not bowed at all, then  opportunity cost is constant.  (If every worker possesses identical skills)  ­Circular flow model: A model which depicts the interactions of all economic actors ­Market: Any mechanism by which buyers and sellers negotiate an exchange ­Factor market: A mechanism by which buyers and sellers of labor and financial capital  negotiate an exchange ­Foreign exchange market: Buyers and sellers of the currencies of various countries  negotiate an exchange ­Goods and services market: Mechanism by which buyers and sellers of goods and  services negotiate an exchange ­Optimization assumption: An assumption that suggests that suggests that the person  in question is trying to maximize some objective ­Marginal benefit: The increase in the benefit that results from an actions ­Marginal cost: The increase in the cost that results from an action ­Net benefit: The difference between all benefits and all costs Ch. 2: Supply and Demand ­Price: The amount of money that must be paid for a unit of output ­Output: The good or service produced for a sale ­Market: Buyers and sellers negotiate an exchange ­Consumers: People in a market who want to exchange money for goods and services ­Producers: People in a market who want to exchange goods and services for money ­Equilibrium price: No consumers wish they had purchased more goods at the price;  no producers with they could have sold more ­Equilibrium quantity: Amount of output exchanged at the equilibrium price ­Quantity demanded: The amount consumers are willing and able to pay during a  particular point in time ­Quantity supplied: The amount firms are willing to sell at a particular price during a  particular point in time ­Capitalist: Markets, in particular markets for financial resources, are free ­Socialist: A significant part, but not all, of the decisions regarding the allocation of  financial resources is made by a governmental authority. ­Communist: Governmental authorities determine the allocation, use, and distribution of financial resources. 2 ­Ceteris paribus: All things equal, meaning there are other factors in real life but we are  not considering them ­Demand: The relationship between price and quantity demanded, ceteris paribus ­Supply: The relationship between price and quantity supplied, ceteris paribus. ­Demand schedule: Presentation, in tabular form, of the price and quantity demanded  for a good ­Supply schedule: Presentation, in tabular form, of the price and quantity supplied for  a good ­Equilibrium: The point where the amount that the consumers want to buy and the  amount the firm wants to sell are the same (Where the supply and demand curves  cross) ­Shortage: The condition where firms do not want to sell as many goods as consumers  want to buy (Excess demand) ­Surplus: The condition where firms want to sell more goods than consumers want to  buy (Excess supply) ­Law of demand: The statement that the relationship between price and quantity  demanded is a negative one (When prices are higher, we tend to buy less) ­Substitution effect: Purchases of less of a product than originally wanted when its  price is too high because a lower priced product is available ­Real­balances effect: When a price increases, your buying power is decreased,  causing you to buy less ­Marginal utility: The amount of extra happiness that people get from an additional unit  of consumption ­Law of diminishing marginal utility: The amount of additional happiness that you get  from an additional unit of consumption falls with each additional unit ­Law of supply: There is a positive relationship between price and quantity supplied ­Technology: The ability to turn input into output ­Price gouging: The pejorative term applied to the circumstance when firms raise prices substantially when demand increases unexpectedly 3 ­Price ceiling: The level above which a price may not rise ­Price floor: Price below which a commodity might not sell Ch. 3: Elasticity and Consumer and Producer Surplus ­Elasticity: Responsiveness of quantity to a change in another variable (Elasticity=  percent of change in quantity divided by the percent of change in price) ­Price elasticity of demand: The responsiveness of quantity demanded to a change in  price ­Price elasticity of supply: The responsiveness of quantity supplied to a change in  price ­Income elasticity of demand: The responsiveness of quantity to a change in income ­Cross­price elasticity of demand: The responsiveness of one good to a change in the price of another good ­Elastic: The circumstance when the percentage change in quantity is larger than the  percentage change in price ­Inelastic: The opposite ­Unitary elastic: When the percentage change in quantity is equal to the percentage  change in price ­Total expenditure rule: If the price and the amount you spend both go in the same  direction, then demand is inelastic, whereas if they go in opposite directions, demand  is elastic ­Perfectly inelastic: When price changes have no effect on quantity ­Perfectly elastic: When price cannot change ­Consumer surplus: The value you get that is in excess of what you pay to get ­Producer surplus: The money the firm gets that is in excess of its marginal cost ­Market failure: The market outcome is not the economically efficient outcome ­Exclusivity: The degree to which the consumption of the good can be restricted by a  seller to only those who pay for it ­Rivalry: The degree to which one person’s consumption reduces the value of the good  4 for the next costumer ­Purely private good: Has the characteristics of both exclusivity and rivalry ­Purely public good: Has neither exclusivity nor rivalry ­Excludable public good: Exclusivity but not rivalry ­Congestible public good: Rivalry but not exclusivity Ch. 4: Production, Cost, and Revenue -Profit: The money that a firm makes; revenue­cost -Cost: The expense that must be incurred to produce goods and services for sale ­Revenue: The money that comes into the firm from the sales of goods and services ­Economic cost: All costs of a business; those that must be paid as well as those  incurred in the form of forgone opportunities ­Accounting cost: Only those costs that must be explicitly paid by the owner of a  business ­Production function: A graph that shows how many resources are needed to produce  various amounts of output ­Cost function: A graph that shows how much various amounts of production cost ­Fixed inputs: Resources that do not change ­Variable inputs: Resources that can be easily changed ­Division of labor: Workers divide the tasks in such a way that each can build  momentum and not have to switch jobs ­Diminishing returns: There exists a point where the addition of resources increases  production but does so at a decreasing rate ­Fixed costs: Costs of production that cannot be changed ­Variable costs: Costs of production that can be changed ­Marginal cost: The addition to cost associated with one additional unit of output ­Average total cost: Total cost divided by output (The cost per unit of production) 5 ­Average variable cost: Total variable cost divided by output (Average variable cost per unit of production) ­Average fixed cost: Total fixed cost divided by output (Average fixed cost per unit of  production) ­Marginal revenue: Additional revenue the firm receives from the sale of each unit ­Perfect competition: A situation in a market where there are many firms producing the  same good ­Monopoly: A situation where there is only one firm producing the good ­A firm should produce an amount so that marginal revenue equals marginal cost ­A firm should shut down is the price is less than the average variable cost at the  quantity where MR=MC Ch. 8: Aggregate Demand and Aggregate Supply ­Aggregate demand: The amounts of real domestic output that domestic consumers,  businesses, gov agencies, and foreign buyers collectively will desire to purchase at  each possible price level ­Foreign purchases effect: When domestic prices are high relative to their imported  alternatives, we will export less to foreign buyers and will import more from foreign  producers; higher prices lead to less domestic output ­Interest rate effect: Higher prices lead to inflation, which leads to less borrowing and  lowering of RGDP (Real GDP) ­Aggregate supply: The level of real domestic output available at each possible price  level ­Demand­pull inflation: Inflation caused by an increase in aggregate demand ­Cost­push inflation: Inflation caused by a decrease in aggregate supply ­Supplyside economics: Government policy intended to influence the economy through aggregate supply by lowering input costs and reducing regulation 6


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