Exam 2 Study Guide
Exam 2 Study Guide Econ 2020
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This 2 page Study Guide was uploaded by Cheyenne Hunt on Saturday February 20, 2016. The Study Guide belongs to Econ 2020 at Auburn University taught by William M. Finck in Spring 2016. Since its upload, it has received 60 views. For similar materials see Principles of Economics: Microeconomics in Business at Auburn University.
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Date Created: 02/20/16
Exam 2 Study Guide Terms PPF- production possibilities frontier; shows the various production possibilities of two commodities when resources are fixed Law of Increasing Opportunity Costs- as production (quantity) increases, the opportunity cost increases Economic growth- outward shift of PPF; Terms of trade- agreement of how much of good x will be traded for an amount of good y Tariff- a tax on an import or export Import quota- a limit on the quantity of a good that can be imported Elasticity- a measure of how much consumers respond to a change in price Price elasticity of demand- a measure of change in Qd based on change in price Elastic- Ed is greater than 1; change is Qd is greater than change in price Perfectly elastic- Ed equals infinity; consumers respond infinitely to a change in price Unit elasticity- Ed equals 1; change in Qd equals change in price Inelastic- Ed is less than 1; change in Qd is less than change in price Perfectly inelastic- Ed is 0; a huge change in price causes no change in Qd Concepts Constant vs. increasing opp. Cost o Constant= straight-line PPF o Increasing= bowed PPF Causes of economic growth o More resources (capital and labor) o Technological progress Absolute/comparative advantage o Absolute- can produce more of good x in a certain amount of time o Comparative- can produce good x at a lower opportunity cost Specialization and trade o Specialization- economy produces good that it has the lower opportunity cost for o Trade- export what economy does not need, and import what it does Tariff vs. quota o Tariff- tax on export/import o Quota- limit on export/import Elastic vs. inelastic o Elastic- a change in Qd when a change in P occurs o Inelastic- little to no change in Qd when a change in P occurs Elasticity and total revenue o Elastic- price and TR move opposite o Inelastic- price and TR move together Determinants of price elasticity of D o Number of substitutes- move together o Time to make purchase- move together o Proportion of income- move together o Necessity- move opposite Elasticity along a curve o Elastic until midpoint o Inelastic from midpoint to end of curve Price elasticity of supply o Percent change in Qs/ percent change in P Income elasticity of demand o Percent change in Qd/ percent change in income o If positive, the good is normal o If negative, the good is inferior Cross elasticity of demand o Percent change in Qd of good x/ percent change in P of good y o If positive, the good are substitutes o If negative, the goods are compliments Formulas Opp cost= quantity of good y/quantity of good x Exports= production-consumption Imports= consumption-production Ed= %∆Qd/ %∆P %∆Qd= ∆Qd/ original Qd %∆P= ∆P/ original P Total revenue= P X Q Graphs
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