AU - PR 2020 - ECON 2020 Final Study Guide - Study Guide

Created by: Brianna Notetaker Elite Notetaker

Schools > Auburn University > Public Relations > PR 2020 > AU - PR 2020 - ECON 2020 Final Study Guide - Study Guide

School: Auburn University

Department: Public Relations

Course: Principles of Economics: Microeconomics

Professor: William Finck

Term: Fall 2016

Tags: Econ, Microecon, Microeconomic, Economics, Microeconomics, and economic

Name: ECON 2020 Final Study Guide

Description: This study guide covers everything that we were told to study for the final.

Uploaded: 12/02/2016

0 5 3 53 Reviews

This preview shows pages 1 - 15 of a 231 page document. to view the rest of the content

ECON 2020 Final About 10 questions from each chapter He will give us all formulas on the final. We need to know why the right answer is right, why wrong ones are
wrong on previous tests Exam One:  Economics - the study of the behavior exhibited by individuals, organizations, and society as a whole in making ideal decisions under  Implicit/opportunity costs - The most valuable option available  Law of Demand - The price of a good and the quantity demanded are inversely related  Law of Supply - The price of a good and the quantity supplied are directly (positively) related. Change in Demand vs. Change in Quantity Demanded (∆ D vs. ∆ Qd)  Change in Quantity demanded - A change in the amount purchased caused by a change in the price; a movement along
the curve.

2  Change in Demand - A shift of the entire curve to the left or right. Factors that shift the Demand Curve 1. Income (Normal/Inferior goods)  Normal goods – Goods for which income and demand move together.  Inferior goods – Goods for which income and demand move opposite. 2. Price of Related Goods (Substitutes/Complements)  Substitutes – Goods that take the place of each other in consumption.  The price of one good and the demand for the other move together .  Complements – Goods that are used together in consumption.  The price of one good and the demand for the other move opposite. 3. Expectations of Future Prices – Expected future price changes and current demand more together.

3 4. Number of Buyers – Ex. As the “baby boomers” age, demand for social security, Viagra, etc. increases. 5. Tastes and Preferences – Ex. Long t-shirts, monograms Change in Supply vs. Change in Quantity Supplied (∆ S vs. ∆ Qs)  Change in quantity supplied - A change in the amount offered for sale caused by a change in the price; a movement along the curve.

4 Change in Supply - A shift of the entire curve to the left or right. Right Shift Left Shift Factors that shift the Supply Curve 1. Input/Resource Prices (Input price and supply move opposite) 2. Technology - the production process of changing economic resources into goods and services; when technology improves,
supply increases. 3. Taxes - taxation and supply move opposite 4. Expectations of future prices - expected future price changes and current supply move opposite; good must be durable/storable 5. Number of sellers - usually the number of sellers in a market changes as profits change; firms will enter when profit is high and
exit when it is low.

5 Market Analysis (S and D Shifts)  What happens to the market for SUVs when the price of gas (a compliment) falls? 1. Demand increases 2. Shortage at the old price 3. Pe rises 4. Qe rises What happens to the market for SUVs when the price of steel (an input)
falls?

6 1.  Supply increases
2.  Surplus at the old price
3.  Pe falls
4.  Qe rises
Steel is an input in SUVs. SUVs and gas are compliments. What happens to
the market for gas when the price of steel falls? 1.  Supply of SUVs increases
2.  Price of SUVs fall
3.  Demand for gas increases
4.  Pe rises
5.  Qe rises

7 Equilibrium (Qs = Qd) Market Model  Equilibrium price - price at which the market clears (Qs = Qd)  Equilibrium - no tendency for change Surplus/Shortage  Surplus = Qs – Qd units  Surplus - at prices about Pe, Qs >Qd  Surpluses put downward pressure on prices until the surplus is eliminated EQUILIBRIUM PRICE (Pe)

8  Shortage = Qd – Qs units  Shortage - At prices below Pe, Qd >Qs  Shortages put upward pressure on prices until the shortage is
eliminated Price Control (Graph Only) Price Controls  Price control – legal restrictions on prices TYPES 1. Price ceiling – a maximum legal price 2. Price floor – minimum legal price

9 Price ceiling  An effective price ceiling is set below the equilibrium price, but what is the effect? Price Floor  An effective price floor is set above the equilibrium price, but what is the effect?

10 Price Control Note:  Price controls have no effect on the market price if they are not set properly.  A price ceiling set above Pe, or a price floor set below, will not change the behavior of producers and consumers; the market remains in
equilibrium.  You cannot assume that ceiling means shortage or floor means surplus. Example: 1. What effect would a price ceiling of $27 have on this market? a. When the price goes down from $36 to $27, you end up with a shortage. Shortage of 90 – 50 = 40 units 2. What effect would a price floor of $27 have on this market? b. None, the market remains in equilibrium

11 Consumer/Producer Surplus Consumer Surplus  Consumer Surplus = willingness to pay – amount paid  Willingness to pay – The maximum price at which a consumer will buy a good. Quantity 1 2 3 4 5 6 7 Willingness $7 $5 $4.50 $4 $3.50 $2.50 $2  What is consumer surplus if the market price of the good is $3.50?  Cross off the numbers that will not contribute to your calculations. (ex. #6 and #7)
Total Willingness = $7 + $5 + $4.50 + $4 + $3.50 = $24 Total Paid = $3.50 x $5 = $17.50 Consumer Surplus = $24 – $17.50 - $6.50  Price and consumer surplus move opposite. Producer Surplus  Producer surplus = amount received – willingness to accept  Willingness to accept – The minimum price at which a producer will sell a good Quantity 1 2 3 4 5 6 7 Willingness $.50 $1 $1.50 $2.50 $3.50 $4 $5  What is producer surplus if the market price of the good is $3.50?  Cross off the numbers not included in calculations (Ex. #6 and #7) Total received = $3.50 x $5 = $17.50 Total Willing = $.50 + $1 + $1.50 + $2.50 +$3.50 = $9 Producer Surplus = $17.50 - $9 = $8.50  Price and producer surplus move together.

15 Exam Two: Absolute/Comparative Advantage  Absolute advantage – the ability to produce more in a given time frame o Which economy should produce each good?  Comparative advantage – the ability to produce at a lower marginal (additional) opportunity cost

This is the end of the preview. Please to view the rest of the content