MICROECONOMICS FULL DETAILED STUDY GUIDE ch. 1-6
MICROECONOMICS FULL DETAILED STUDY GUIDE ch. 1-6 ECON2106
Popular in Microeconomics
Popular in Economics
This 7 page Study Guide was uploaded by Katie Mulliken on Monday October 3, 2016. The Study Guide belongs to ECON2106 at University of Georgia taught by Till Schreiber in Fall 2016. Since its upload, it has received 6 views. For similar materials see Microeconomics in Economics at University of Georgia.
Reviews for MICROECONOMICS FULL DETAILED STUDY GUIDE ch. 1-6
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/03/16
Resources are Efficient if it’s not possible to make someone better off w/o making another worse off 6 Key Ideas of Economics: – People make rational choices by comparing benefits & costs – A choice is a Tradeoff – Benefit: what u gain from it (preference) – Cost: what u must give up to get it (OC) – Most choices are ‘how much’ choices made at the margin – Choices respond to incentives PPF ~ Production Possibilities Frontier – the boundary between those combos of g/s that can be produced & those that can’t be produced… PPF determines OC. Points on PPF attainable & efficient Points inside PPF attainable Points outside PPF unattainable Allocative Efficiency – the point on the PPF most preferred (marginal B = marginal C) E F…. Qpizza increases by 1mill; Qcola decreases by 5mill cans… 1 pizza costs 5 cans of cola @ E; 1P costs 5C & 1C costs 1/5 of a pizza (inverse) OC is a Ratio Outward bow: As Qproduced of each increases, so does its OC & resources aren’t equally productive Marginal Cost – of a good is the OC of producing one more unit of it From AF on PPF, OC of a pizza increases … Marginal Cost Curve Marginal Benefit – benefit from consuming 1 more unit of a good; amount willing to pay Marginal Benefit Curve – shows relationship of MB of a good & Q consumed ~ To get more pizza, ur willing to give up more cola Principle of Decreasing Marginal Benefit – the more of a good, the smaller its MB ~ The less we’re willing to pay for an additional unit of it Economic Growth – increase in standard of living, expands PPF… Tech Change, Capital Accumulation Cost of Economic Growth – OC of economic growth is reducing current consumption (future $ = tradeoff) Comparative Advantage – if u can perform the activity at a lower OC than anyone else (comparing OCs) Absolute Advantage – if ur more productive than others (comparing productivities) Joe + Liz In 1 hr, Joe can produce 6 smoothies OR 30 salads In 1 hr, Liz produce 30 smoothies OR 30 salads Joe’s OC of producing 1 smoothie is 5 salads (A) Liz’s OC of producing 1 smoothie is 1 salad (A) Joe’s OC of producing 1 salad is 1/5 smoothie Liz’s OC of producing 1 salad is 1 smoothie In 1 hour: Joe can produce 5 smoothies & 5 salads In 1 hr: Liz can produce 15 smoothies &15 salads PPF: Joe’s OC of 1 salad is less than Liz’s (1/5 vs. 1) Joe – comparative advantage in producing salads Liz’s OC of 1 smoothie is less than Joe’s (1 vs. 5) Liz – comparative advantage in producing smoothies Gains from Trade – most beneficial to specialize in the good in which they have the comparative advantage Liz produces 30 smoothies & 0 salads Joe produces 30 salads & 0 smoothies Trade: Liz sells Joe 10 smoothies & buys 20 salads Joe sells Liz 20 salads & buys 10 smoothies After Trade: Liz has 20 smoothies & 20 salads Joe has 10 smoothies & 10 salads Gains from Trade: +5 smoothies & + 5 salads an hour +5 smoothies & +5 salads an hour Point B on PPF shows production if they specialized They trade salads for smoothies along the red “Trade Line” The price of 1 salad = 2 smoothies OR The price of 1 smoothie = ½ of a salad Joe buys smoothies from Liz; moves to C (outside his PPF) Liz buys salads from Joe; moves to C (outside her PPF) For coordination: 4 complimentary social institutions: (Individuals coordinate through price adjustments) Firm – economic unit that hires factors of production & organizes those factors to produce & sell goods Market – any procedure enabling buyers/sellers to get info & do business Money – any generally accepted commodity or token of payment Property Rights – social arrangements that govern ownership, use, & disposal of resources, goods/services Market Equilibrium: when price balances the plans of buyers & sellers Equilibrium Price: price which QD = QS Equilibrium Quantity: Q bought & sold @ equilibrium Price regulates buying & selling plans….. so Price adjusts when plans don’t match Price $2 QS > QD = surplus Price $1 QD > QS = shortage At prices above equilibrium, surplus forces price down At prices below equilibrium, shortage forces price up If Demand Increases, Demand Curve shifts right At original price ($1.50) there’s now a shortage Price rises & QS increases along the supply curve If Demand Decreases, Demand Curve shifts left At original price ($1.50) there’s now a surplus Price falls & QS decreases along supply curve If Supply Increases, Supply Curve shifts right At original price, there’s now a surplus Price falls & QD increases along demand curve If Supply Decreases shift left At original price, there’s now a Shortage Price rises & QD decreases along demand curve Increase in Demand and Supply increases the equilibrium quantity: Change in Equilibrium is uncertain bc the increase in demand raises the price & increase in supply lowers it Decrease in Demand & Increase in Supply lowers the equilibrium price: Change in Equilibrium Q is uncertain bc the decrease in demand decreases Q & the increase in supply increases Q Increase in Demand & Decrease in Supply raises the equilibrium price: Change in Equilibrium is uncertain because the increase in demand increases the Q & the decrease in supply decreases the Q Law of Demand –higher price of a good = smaller QD [lower price = larger QD]… due to: Substitution Effect – when price of good rises, the relative price (OC) rises o Each good has Substitutes or other goods that can be used instead o As OC of a good rises, more incentive to switch to a substitute, so QD of that good decreases Income Effect – when a price rises, the prices rise relative to income o People can’t buy all the same things they bought before; so the QD of some goods decrease o If prices go down, people have more $$ (more of their income) to spend on more of that good Demand – entire relationship between price of a good & QD of a good ~ Willingness & Ability to Pay Curve ~ Demand Schedule – lists all the QD at each price Increase in Price = Decrease in QD (& movement up along curve) Decrease in Price = Increase in QD (& movement down along curve) Smaller Q available = Higher $ someone is willing to pay for another unit Willingness to pay measures marginal benefit Changes in Demand: if something influences amount bought other than prices (diff @ each price) When Demand increases curve shifts right When Demand decreases curve shifts left 6 Changes/Shifts in Demand (NOT PRICE!!!!) Price of Related Goods: Substitute ~ good that can be used in place of another good (car vs. bike) Complement ~ good that’s used in conjunction with another good (toothpaste to toothbrush) Demand for Energy Bars increases if: price of Substitute rises OR price of complement falls Expected Future Prices: if price of good is expected to rise in future, current D rises + shifts right Income: if income rises, consumers buy more of most goods & D shifts right Normal Good – D increases as income increases (luxury shit) Inferior Good – D decreases as income increases (ramen) Population: large pop = higher D for all goods Preferences: ppl w same income & diff preferences have diff demands Expected Future Income & Credit: if income exp. to rise or credit is easy to get, current D increases If you demand something, u: 1) want it 2) can afford it 3) have made a definite plan to buy it Wants: vast desires for goods. Scarcity assures all won’t be satisfied; Demand is decision which to satisfy Law of Supply Higher price of good = higher Quantity Supplied; decreasing price of good = decreasing Quantity Supplied Tendency for the marginal cost of producing a good to increase as Q produced increases Producers are willing to supply a good only if they can at least cover their MC of production If firms supply goods it: 1) resources + tech to produce 2) can profit from it 3) plan to produce + sell Quantity Supplied of g/s is amount that producers plan to sell during a given time period at a specific price Resources & Technology control what is and isn’t possible to produce Supply reflects the decision of which items to produce with resources Supply – relationship of QS & Price of a good; shown by Supply Curve ~ Minimum Supply Price Curve ~ As Q produced increases = Marginal Cost increases (MC = lowest price) Lowest price (MC) at which someone is willing to sell an addition unit rises 6 Changes / Shifts in Supply (NOT PRICE!!!) If Supply increases curve shit right If Supply decreases curve shift left Price of Factors of Production: Rise in price of a factor of production = Decrease in supply & shifts left Prices of Related Goods Produced: a substitute in production of a good is a diff good that can be produced using the same resources. Goods are complements in production if they must be produced together Supply of good increases if: price of production substitute falls or price of production complement rises Expected Future Prices: if price of a good is expected to rise in future, current supply decreases; shifts left Number of Suppliers: more # of suppliers of a good = greater supply of the good; shifts right Technology: tech advances make new products (supply rises) & lower cost to produce products; shift right State of Nature (shocks): includes natural forces influencing production (ex: weather) supply falls; shift left **Price change = moves along supply curve. Increase in QS = moves up Decrease in QS = moves down
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'