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Econ 2106 Midterm SG

by: Joshua Crump

Econ 2106 Midterm SG Econ 2106

Joshua Crump
GPA 3.71

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this covers chapters 1-5 which is on the midterm. Contains all the terms and concepts
Business Economics
Dr. Constantin Oglobin
Study Guide
Economics, business
50 ?




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This 5 page Study Guide was uploaded by Joshua Crump on Saturday October 1, 2016. The Study Guide belongs to Econ 2106 at Georgia Southern University taught by Dr. Constantin Oglobin in Fall 2016. Since its upload, it has received 55 views. For similar materials see Business Economics in Economics at Georgia Southern University.


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Date Created: 10/01/16
Econ 2106 Midterm Study Guide: Concepts/Terms Chapter 1 What is Economics?  Economics: the study of choice under conditions of scarcity  Scarcity: A situation in which the amount of something available is insufficient to satisfy the desire for it  Opportunity cost: what we must forego when we make a choice  Implicit costs: the value of something sacrificed when no direct payment is made  Resources: Labor, capital, land, and entrepreneurship o Labor: time people spend making goods & services o Capital: any long lasting tool that is itself produced and helps us make other goods and services  Physical capital: machines, equipment, factories, computers  Human capital: skills and knowledge  Capital Stock: total amount of capital at a nations disposal at any point in time. o Land: the physical space on which production takes place, as well as the useful materials—natural resources—found under it or on it, such as crude oil, iron, coal, or fertile soil. o Entrepreneurship: the ability (and the willingness to use it) to combine the other resources into a productive enterprise  Microeconomics: concerned with the behavior of individual actors on the economic scene—households, business firms, and governments  Macroeconomics: the study of the behavior of the overall economy  Positive economics: study of how the economy works. Tested by looking at the facts  Normative economics: study of what should be. Makes judgements and prescribes solutions depending on our values Chapter 2 Scarcity, Choice, & Economic Systems  PPF: shows all combinations of goods that can be produced with the resources and technology available o Outside the frontier the points are unattainable o Inside the frontier they are productive inefficient(a situation in which more of at least one good can be produced without sacrificing the production of any other good) o Opportunity cost is why PPF isn’t a straight line o Opp. Cost of a good increases as we make more of it  Specialization: method of production in which each person or firm concentrates on a limited number of activities o Gains from specialization come from: development of expertise, minimizing downtime, and comparative advantage  Exchange: act of trading with other to obtain what we desire  Absolute advantage: produce a good using fewer resources than another individual can  Comparative advantage: produce a good with a smaller opportunity cost than some other person can  Economies: o Traditional: resources are allocated according to the long lived practices of the past o Command: resources are allocated mostly by explicit instructions from some higher authority. o Market: resources are allocated through individual decision making Chapter 3 Supply and Demand  Perfectly competitive: markets each buyer and seller takes the market price as given  Quantity demanded: amount of a good or service that buyers in a market would choose to buy at a certain price, given the constraints they face  Demand: entire relationship between price and quantity demanded o Law of demand: price goes up, Quantity demanded decreases o Slopes down bc of law of demand  Shifts in Demand o Income: normal good (people demand more as Income goes up v inferior (people demand less as income goes up)) o Prices of Related goods: A rise in the price of a substitute increases the demand for a good, shifting the demand curve to the right  A rise in the price of a complement decreases the demand for a good, shifting the demand curve to the left o Future Price: an expected price rise shift Demand right, and expected price fall shift demand left o Population: # of buyers increases, demand increases o Tastes: when tastes change in favor of a good, the demand for it increases; when tastes change away from a good, the demand decreases  Quantity supplied: the quantity of a good or service that sellers in a market would choose to sell at a certain price  Supply: the relationship between price and quantity supplied o Law of supply: when price increases, quantity supplied increases o Slopes up bc of law of supply  Shifts in Supply o Input: rise in the price of an input makes supply shift left and vice versa o Prices of Alternatives (other goods that a firm could produce, using the same kinds of inputs as the good in question): When the price for an alternative rise, the supply curve shifts leftward o Expected price: expectation of a future price rise shifts supply left, and expectation of future price fall shifts supply right o Technology: advances in tech. shift supply right o Number of firms: increased amount of firms shift supply right  Equilibrium price: price at which Qs equals Qd o point where they cross on x axis is equilibrium quantity  Excess Demand: Qd>Qs  Excess Supply: Qs>Qd Chapter 4  Price ceiling: government imposed maximum legal price in a market. An effective price ceiling is one that’s below the equilibrium price o Creates a shortage o Shortage can create a black market: a market where goods are sold illegally o Rent control: price ceiling imposed in a rental housing market  Price Floor: government imposed minimum price below which the price is not permitted to fall o Effective one is set above the equilibrium price o Creates a surplus o Gov maintains by purchasing surplus at guaranteed price  Excise Tax: tax on a specific good or service o Tax from sellers shifts supply curve up by amount of tax o Tax incidence: distribution of a tax burden o Tax from buyers shifts the demand curve down by amount of tax  Subsidy: government payment to buyers or sellers on each unit purchased or sold o Lower prices of goods and encourage people to buy them o Shift demand up if subsidy is paid to buyers o Shifts supply up as well Chapter 5 Elasticity  Price elasticity of demand: measures the sensitivity of quantity demanded to the price of the good o Measured as change in Qd/ change in price o Greater the elasticity value, more sensitive quanitity demanded is to price  Total revenue: price per unit x quanitiy sold (P x Q) o Rise in price increases total revenue when demand is inelastic, and decreases total revenue when demand is elastic o Fall in price decreases total revenue when demand is inelastic and increases total revenue when demand is elastic  Values o Elastic >1, Unit Elastic = 1, Inelastic <1, Perfect Elastic (infinity), perfect inelastic = 0  Determinants of Elasticity o Availability of substitutes: when close substitutes are available for a product, demand tends to be more elastic o Necessities v Luxuries: good we regard as necessary are less elastic than luxuries o Importance in buyer’s budget: when spending on a good makes up a larger proportion of families budgets, demand tends to be more elastic o Time horizon: demand more elastic in long run than in the short run  Price elasticity of supply: measures sensitivity of quantity supplied to price o Change in Qs/ change in price o Greater the elasticity value, the more sensitive quantity supplied is to price  Determinants of Supply Elasticity o How easy suppliers can switch to alternative goods o Supply is more elastic in the long run than in short run  Income elasticity of demand: measures the sensitivity of quantity demanded to changes in consumer’s income o Change in Qd/ change in income o How far the demand curve shifts in response to a change in income o Greater the elasticity value, the more sensitive quantity demanded is to income o Its positive for normal goods, but negative for inferior goods  Cross price elasticity of demand: shows the sensitivity of quantity demanded of one good to the price of another good o %change in quantity demanded of good X divided by % change in price of good Z (Qx/Pz) o about how far the demand curve shifts in response to a change in price of a related good o positive cross price elasticity means the two goods are substitutes: a negative cross price elasticity means the goods are complements


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