Exam 1 Study Guide
Exam 1 Study Guide Econ 201
Popular in Principles of Macroeconomics
Popular in Economics
This 3 page Study Guide was uploaded by Kenia Viezcas on Sunday September 25, 2016. The Study Guide belongs to Econ 201 at Miami University taught by Matthew Makofske in Fall 2016. Since its upload, it has received 169 views. For similar materials see Principles of Macroeconomics in Economics at Miami University.
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Date Created: 09/25/16
Terms Economics Negative/Positive Externality Production Possibilities Set (PPS_ Allocate goods and services Production PossibilitiesFrontier(PPF) Efficiency Intrinsic Consumption Value Positive Statement Competitive Factors of Production (FOP) Normative Statement Cartel Production Point (PoP) OC aof X / OC bf Y Monopoly Feasible Absolute Advantage Microeconomics Macro economics Comparative Advantage Opportunity Cost Price of Trade Terms of Trade Individual Demand Demand Quantity Demanded Demand Schedule Demand Curve Demand Function Concepts Seven Principles of Economics 1. People and societies face trade offs 2. The cost of something is EVERYTHING you give up to get it 3. Rational People make decisions at the margin 4. People respond to incentives 5. Trade can make all parties of that trade better off 6. Markets are usually a good way to organize economic activity 7. Government can sometimes improve market outcomes Circular Flow Models help understand how an economy functions as a whole Assumption 1: Two types of economic actors: Households/Individuals(HH) and Firms! Assumption 2: Society has an endowment of resources, owned by HH initially Assumption 3: Production is possible Assumption 4: Households form firms to produce final goods and services Assumption 5: Society has money (or a medium of exchange for something of value) The Productions Possibility Frontier (PPF) shows the tradeoff economies face in the production of two different goods (assuming there is a fixed economy) PoP is not feasible or efficient (If y increases, and x stays unchanged it’s not feasible) If the ability to make cars improves, something else has to stay the same or decrease If PPF were to shift inward, there is an external defect (like natural disaster) What makes a point feasible? Anything that increases the FOP Bilateral Model of Trade (two individuals, two countries, etc.) when will it be beneficial to both parties to trade with one another? Assume: two particle can use single input to produce two goods Positive Statements Normative Statements A claim about the way the world is claim about the way the world should be Based on scientific judgments Always involved value judgments and Not based on value judgments other scientific judgments When a party can produce more of a good than the other party, they have Absolute Advantage, when the other party can produce a good at a lower opportunity cost, they have Comparative Advantage. Is it possible for a party to have Absolute Advantage in any, one, or both of the goods being traded? Is it possible for one party to have CA over another good? The “Law” of Comparative Advantage When CA exists, firm must specialize in a good, but why? How do parties agree how much of each good they’ll produce so they can specialize in making that good? Px= Price of X= Amount of Y given up X Py= Price of Y= Amount of X given up Y Px= 1/ Py and Py=1/Px How do markets allocate resources according to individual buyers and sellers? Who determines the price of the good? What role does the price play in determining the amount of the good sold? Assumptions of a competitive market: Medium exchange = money Homogenous goods= different sellers are buying identical goods Many buyer, many sellers No buyer or seller can influence the price unless it’s a monopoly Quantity Demanded (Q ) v. Individual Quantity Demanded (q ) d D d Q (P) is the some of q across all buys in market As Price (P) Increased, Quantity Demanded Decreases* As Price (P) Decreased, Quantity Demanded Increases* *neither of these outcomes affect Demand (Laws) of Demand How do prices of goods affect quantity demanded? What happens to Demand when Price Changes? How are demand and individual demand different? How is increase in demand illustrated vs. a decrease in demand? What does a shift mean and what does it look like? Increase and decrease in demand. How are a shift in a curve and a shift in a point on a curve different? What causes changes in demand? Know how this affects the buyers and the direction of the shift in the demand curve.
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