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Exam 1 study guide - everything you need to know!

by: Moriah Gerber

Exam 1 study guide - everything you need to know! ECON 142

Marketplace > Kansas > Micro Economics > ECON 142 > Exam 1 study guide everything you need to know
Moriah Gerber
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About this Document

This study guide includes all of the things you will need to know for the test.
Dr. Brian Staihr
Study Guide
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This 5 page Study Guide was uploaded by Moriah Gerber on Thursday September 8, 2016. The Study Guide belongs to ECON 142 at Kansas taught by Dr. Brian Staihr in Fall 2016. Since its upload, it has received 331 views. For similar materials see Microeconomics in Micro Economics at Kansas.

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Date Created: 09/08/16
Thursday, September 8, 2016 Econ 142 Exam 1 study guide Chapter 1 - definitions - What is the definition of economics? choices people make to attain their goals given their scarce resources • - Define Equity and Efficiency. • Efficiency: divided up so there is no waste • Equity: divided up fairly - Define margin. • a small increment, one more unit, extra or additional - Define opportunity cost. • the value of the next best alternative - Define Market. • a set of buyers and sellers whose actions affect the price of a product or service - Name the three main ideas in economics. 1. people are rational 2. people respond to economic incentives 3. optimal decisions are made at the “margin” - Normative vs. Positive • positive statement: a fact - “what is” - Ex: Kansas City’s City Council just voted to increase the minimum wage. • Normative statement: statement of what “should be” and contains a judgement - Ex: “The minimum wage should be increased…” 1 Thursday, September 8, 2016 Chapter 3 - supply and demand Name the 5 demand shifters. 1. A change in income - Normal goods: for most goods, increase in income means an increase (shift right) in demand - Inferior goods: for a few goods, increase income means a decrease (shift left) in demand 2. A change in the prices of related goods - a change in the price of one good, Good X, can cause a change in the demand for Good Y • Complements: Things we buy to go with another thing (Chips and salsa) • Substitutes: Things we buy instead of the other (A nook or a kindle, diet coke or a diet pepsi) - If A and B are substitutes, price of A goes up so demand for B shifts right - If A and B are complements, price A goes up so demand for B shifts left 3. A change in tastes and/or preferences - Tastes change, something becomes more popular…shift right. Something becomes less popular…shift left. 4. A change in expectations (price) - Expect the price to be higher in the future, demand shifts right (increases) as you demand more today. - Expect the price to be lower in the future, demand shifts left (decreases) as you wait for that lower price 5. Changes in population and demographics - could also be considered “number of buyers” - as overall population increases, demand increases - as specific populations increase (examples: over 55, hispanic, etc.) demand for specific goods/services increases 2 Thursday, September 8, 2016 Name the 5 supply shifters. 1. A change in technology - positive technology change causes curve to shift right - negative change shifts it to the left 2. A change in the price of inputs - if the price of the input goes up, supply shifts left (decrease) 3. A change in expectations - expectations affect supply the opposite way that they affect demand - with supply: if you think prices will go down in the future, you supply more today. 4. Change in the number of firms/sellers - An increase in the number of firms will increase the supply…shifting it to the right - A decrease in the number of sellers shifts the curve to the left 5. A change in the prices of other goods (substitutes in production) Cases when BOTH curves would shift: - your income increases (normal good) and technology advances - price of a demand substitute increases and the price of an input increases - when both curves move, remember these things: • if they move in the same direction you will know quantity but you wont know price • if they move in opposite directions you will know price but you wont know quantity Chapter 4 - consumer surplus Equations you MUST know: - consumer surplus: P=a-b*Q - area of a triangle: (1/2) base * height - When looking at the “triangle” the top half is consumer surplus and the bottom half is producer surplus 3 Thursday, September 8, 2016 Define consumer surplus. - the difference between the price you have to pay and the price you’d be willing to pay Define producer surplus. - difference between the lowest price a firm would accept and the price it actually receives Define deadweight loss. - deadweight loss is the reduction in economic surplus that results when the market isn't efficient Define economic surplus. - The combination of both consumer and producer surplus Define price ceiling. - When the price cannot exceed a certain point. Define price floor. - A price level you cannot go below. How do you find the value of consumer surplus? - The area of the triangle Things to know about consumer surplus: - shifting either curve, or both curves, can affect the value of consumer surplus - if consumer surplus increases, consumers (as a whole) are better off - if consumers surplus decreases, consumers (as a whole) are worse off What happens to supply and demand when you apply a tax? - you must shift the supply curve up by the tax amount - when that happens consumer surplus is reduced - the harm (or cost) to consumer surplus is measured by the loss in consumer surplus What happens if a price is set above the equilibrium price in the case of a price ceiling? - It does nothing to distort the market 4 Thursday, September 8, 2016 What happens if a price is set below the equilibrium price in the case of a price floor? - It does nothing to distort the market 5


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