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Exam 1 Study Guide

by: Olivia SaoBento

Exam 1 Study Guide Econ 1011

Olivia SaoBento
GPA 3.76

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About this Document

This is a complied and organized collection of the material that will be covered on our first exam.
Principles of Economics: Microeconomics
Ali Hassan
Study Guide
Econ 1011, Economics
50 ?




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This 5 page Study Guide was uploaded by Olivia SaoBento on Friday February 12, 2016. The Study Guide belongs to Econ 1011 at George Washington University taught by Ali Hassan in Spring 2016. Since its upload, it has received 48 views. For similar materials see Principles of Economics: Microeconomics in Economcs at George Washington University.


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Date Created: 02/12/16
Exam 1 Friday, February 12, 2016 4:02 PM Opportunity Cost- Price of one good in relation to another, what you give up when you make a choice **PointsA, B, C are all obtainable and most efficient as they lie on the PPF. Point X is obtainable but is not most efficient, and point Y is unobtainable, as it lies outside the PPF. Markets- Buyer and seller of a particular good/service and the institution through which they trade Factors of production (FOP) a. Labor: All types of work b. Capitol: man made goods that aid in business c. Natural resources/land:all natural goods d. Entrepreneurs: People who bring the FOP's together Free Market- Market with few governmentrestrictions on production and selling of goods and/or how FOP's can be employed **When the governmentintervenes the CircleFlow leaks and will eventually fail Key legal base of Market- what interaction is allowed and required of the government - Protectionof private property - Enforcementof contracts and property rights Trade- Buying and selling ** in order for trade to occur all agents involved have to gain from it. *** Points outside the PPF are obtainable after trade *** Points outside the PPF are obtainable after trade Absolute advantage- ability of an agent to produce more of a good or service than their competitorsw/ the same resources. Comparative Advantage- ability to produce a good or service at a lower opportunity cost than their competitors. Quantity Demand- Amount of a good/servicethat a consumer is willing and able to buy at a given price Market Demand- The demand of all the consumersof a given good/service Demand Schedule- relationship between price (p) and Quantity demand (Qd/Q) of a good ** Line is called the Demand Curve, the function of the demand schedule ***Demand Curve always has a negative slope Law of Demand- When all else constant, as the price of a good decreases the Quantity Demand will increase Ceterius Paribus: when everything else is held constant Substitution Effect: W/ two substitutes, if Price of good 1 increases then the Quantity demand of good 2 will increase **Law of demand (↓P,↑Q) holds: - The goods are affordable to the consumer(Income effect) - Substitution effect 5 Variables for Law of Demand 1. Income ↑Income, ↑Quantity Demand (NormalGood) ↑Income, ↓Quantity Demand (Inferior Good(Costeffectivevs. Luxury Iteam)) 2. Price of related goods a. Substitutes (i.e. different brand of paper towels) Given goods X,Y ↑P x ↑Qd y b. Complements (i.e. gas and cars) Given goods X,Y ↑P x ↓Qd y 3. Tastes: general change in consumers demands for different goods (potentially due to time, events, location) 4. Population/Demographics a. Population - ↑P → ↑Qd (just more people) b. Demographics:Age, race, gender →Certain good will inherently be more popualar to some 5. Expected Future Prices ↑P ex↑Qd **Shifts in the Demand Curve occurs when variables change **Movementalong the Demand Curve occurs when in Ceterius Paribus Supply schedule- relationship between price (p) and Quantity supply (Qs/Q) of a good Law of Supply - Increase in the price of a good leads to an increase in the quantity supply ** Supply curve always has a positive slope Factors that change the Supply Curve 1. Price of Import- ↑ Price of import → ↓ Supply 2. Productivity-↑ Productivity → ↑ Supply 3. Price of substitute in production- ↑ Px → ↓Sy 4. # of firms- ↑ # of firms → ↑Supply 5. Expected Future Price - ↑P ex. → ↓S Market price- Where the consumers and producers meet (also the point of equilibrium) Consumer Surplus (CS)- difference between the highest price the consumeris willing to pay and the actual price ** CS for the whole market= area under the Demand Curve above the Market price Marginal Benefit - additional benefit to the consumer when consuming one more unit of a good **MB = Max price the consumer is willing to pay Producer Surplus (PS)- difference between the lowest price the producer will accept and the price it actually receives **PS for the whole market=area above the Supply Curve bellow the Market price Marginal Cost- Total Welfare: Combination of the Consumer Surplus and Producer Surplus W equilibriumPS **Governmentshould try to maximize surplus/welfare ** W equilibriumhe maximum economicsurplus


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