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USC - ECON 221 - Microeconomics Final Exam Study Guide - Study Guide

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USC - ECON 221 - Microeconomics Final Exam Study Guide - Study Guide

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background image Microeconomics Final Exam Study Guide  The Basics Scarcity: The limited nature of society’s resources
Economics: The study of using limited resources to satisfy unlimited wants and needs
Tradeoffs: Making decisions requires trading off one goal against another Should you spend your free time studying, sleeping, eating etc.
Society faces tradeoff between efficiency and equality
Resources: Land, labor, capital (machinery not monetary) Opportunity Cost: The highest value forgone alternative Opportunity cost does not just include money; beware of double counting
Value is subjective
Positive statement: What is (describe the world as it is) Normative statement: What should be (prescribe how the world should be)
MB = MC: People choose where marginal cost is equal to marginal benefit
Correlation does NOT mean Causation
Ceteris Paribus: All other things equal or all else constant
What to produce?: Efficient means we don’t waste resources; we produce at the lowest possible cost
How to produce?: Efficient means we don’t waste resources; we produce at the lowest possible cost
For whom to produce?: Efficient means we produce the things that are worth it
Assume the following: Simple economy with only two goods
Factors of production are fixed Methods of production are fixed Production Production Possibilities Frontier: Shows the combinations of output that the economy can possibly produce Under the curve: Inefficient (possible) On the curve: Efficient (possible)
Outside of the curve: Impossible
Calculating Marginal Cost: Use the Production Possibilities Frontier (change in cost / change in quantity) Calculating Marginal Benefit: Think about what value people place on additional units Law of diminishing marginal benefit: As the consumption of a product increases, the marginal utility of that  product decreases for each additional unit Allocating Goods Force (Stealing): Goods go to the strongest or most powerful If you must forcibly take something, you could not offer anything for a mutually beneficial trade Decreases incentive to produce
Least efficient
Incentive to produce and conserve is higher Competition: Goods go to whoever has spent the most time practicing, studying, has the most talent, etc. Can be efficient in the sense that the people who value it the most will also be the people willing to 
sacrifice the most time and effort practicing, studying, etc.
Allocating all goods by footrace or exam would be extremely inefficient
Have very little incentive to be productive or conserve resources
First come first serve: Goods go to whoever gets there first Can be efficient when you have a large number of similar items that people only occasionally value Generally inefficient for allocating most consumption goods
background image Incentive is to do nothing but wait in lines, unless being productive will somehow move you to the front 
of the line you have no need to produce anything
Personal Characteristics: Goods go to the people the producers like the best Can be efficient when allocating time and personal energy Incentives are to make yourself likable Price: Goods go the people willing to sacrifice the most Can be efficient if other goods and resources are also allocated by a price mechanism Random Drawing: Goods go to the luckiest, not the person who values it the most
Economic Growth: Occurs when we have an increase in the production possibilities frontier (ppf)
Doesn’t occur without savings Increase in technology
Increase in resource base
Increase in human capital
Increased improvement in the rules governing the economy
Shifts in the production possibility frontier Trade: Lets us consume outside of our production possibilities frontier If trade is voluntary, the goods go to the people who want them the most
It creates value from nothing
Absolute advantage: the ability to produce a good using fewer inputs than another producer Overall more efficient Comparative advantage: the ability to produce a good at a lower opportunity cost than another producer Consumers and Demand  Demand Curve: Shows the relationship between price and quantity of which a consumer is able to purchase
Changing the Demand Curve: Change in preferences or utility
Change in expectations Change in income
Change in normal goods
Change in compliments
Change in inferior goods
Change in substitutes Law of demand: All else constant, as the price of a good increases the quantity consumers are willing and able  to purchase (quantity demanded) falls and as the price of a good decreases the quantity demanded rises Shifting the Demand Curve Normal good Inferior Good Income  Demand; Income  Demand; Income  Demand Income  Demand Substitute Compliments Price of Substitute  Demand; Price of Compliment  Demand; Price of Substitute  Demand Price of Compliment  Demand; Marginal Utility: People consume where the MU per dollar spent is equal for all goods Marginal utility falls as you consume more
Spend all of income
Buy more of the good with the higher MU per $
Consumer Surplus: The amount a buyer is willing to pay for a good minus the amount  the buyer actually pays for it
Area under the demand curve above price and out to quantity
Elasticity of Demand: how responsive consumers are to a change in price Calculate: %change in quantity

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School: University of South Carolina
Department: Economics
Course: Principles of Microeconomics
Professor: Elizabeth Watson
Term: Fall 2016
Tags: micro and Microeconomics
Name: Microeconomics Final Exam Study Guide
Description: This study guide covers the list provided in class with much more. The information is taken directly from her lecture as well as the book.
Uploaded: 11/05/2016
4 Pages 66 Views 52 Unlocks
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