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RUTGERS / Economics / ECON 220 / What forces laws and destroys capitalism?

What forces laws and destroys capitalism?

What forces laws and destroys capitalism?

Description

School: Rutgers University
Department: Economics
Course: Intro to Microeconomics
Professor: Professor blair
Term: Fall 2016
Tags: micro, Microeconomics, Exam 1, Study Guide, and Midterm 1
Cost: 50
Name: Micro exam 1 study guide
Description: This only covers chapters 1 through 6 but very linear and thorough
Uploaded: 02/13/2017
14 Pages 17 Views 2 Unlocks
Reviews


Chapter One: Limits, Alternatives, and Resources 


What forces laws and destroys capitalism?



● Economics: household management, home affairs, involves social behaviors, distribution of goods to satisfy human wants. Everyone will be an economist in life.

● Communism: forces laws and destroys capitalism

● Socialism: gradually arises from the Free Market system and through systematic elimination of a private sector. Socialist believe you can transition from capitalism to socialism without changing character of state, more concerned with distribution of wealth ○ How we ‘slice the pie’

● Capitalism: concerned with creation of wealth

○ Make the pie as big as possible

● Both socialism and communism are based on government resources ● Command system: consists of communism or socialism

○ Production goals

○ Allocation of resources


What concerned the creation of wealth?



○ Level of capital good and consumer goods

○ Wages and prices

● When a firm sells a product, they are creating wealth and selling for more money than cost of producing

● If companies don’t produce adequate product, they will go out of business because competitors will do better than them

● Central planning board: decides what goods will be produced, how they’re produced, and who will get the goods

● Free Market System

○ Capitalism: the economics freedom of choice, voluntary exchange (the consumer drives the market), private ownership of resources, profit motive and self interest, and competition Don't forget about the age old question of What do we call the southern part of mexico and central america?

● Market prices direct economics activity

● Scarcity: wants exceed productive capacity

○ Opportunity cost: to have more than one thing, you must pass up the opportunity to get the next best thing


What consists of communism or socialism?



● Utility: satisfaction of consuming a good

● Marginal Analysis: comparisons of MB and MC, used to decide

● Scientific method: observes the real world

○ Hypothesis

○ Test

○ Create a theory

○ Economic principle

■ Statement that enables the prediction of probable effects

● Microeconomics: individual

● Macroeconomics: whole

● Positive economics: focuses on facts and cause and effect

● Normative economics: what ought to be

● Per Capita income: per nation income

● Limited income forces choices

● Economic resources: natural, human, or manufactured resources that go into production ○ Land

○ Labor

○ Capital

○ Entrepreneurial We also discuss several other topics like What is output in computer?

● Production possibility model: similar to budget line, assumes:

○ full employment: can’t hire anyone

○ fixed resources: can’t discover

○ fixed technology: can’t innovate

○ two good economy: only produce

○ ceteris paribus: everything has to be constant

A B C D E (A,B) → 1P=1R 1R=1 P Pizzas 0 1 2 3 4 (B,C) → 1P=2R 1R=½ P Robots 10 9 7 4 0 (C,D) → 1P=3R 1R=⅓ P (D,E) → 1P=4R 1R=¼ P

● Law of increasing opportunity: production of a product increases, the cost to produce additional units also increases

● MC =∆TC/∆Q

● MR=∆TR/∆C

● Optimal output - marginal benefit = marginal cost

● Accounting profit = total revenue - explicit cost

● Economic profit = total revenue - explicit cost - implicit cost

Chapter 3 

● Market: institution that brings together demanders and suppliers of particular goods and services

● Demand: schedule / curve that shows many amounts of product that consumers are willing and able to buy at each of a series of possible prices during a specific time period ○ Individual demand We also discuss several other topics like How do you practice transcribing?

○ Market demand

○ To sell more output → lower price

● Law of demand: fundamental behavior

○ Price increase → demand decrease

○ Price decrease → demand increase

○ Diminishing marginal utility: decrease in added satisfaction

○ Income effect: increased purchasing power of money. A lower price allows the buyer to purchase more of the product

○ Substitution effect: lower price gives incentive to substitute the higher priced good for a now lower price good

● Change in demand: shift in demand schedule

● Determinants of demand: what causes a shift in the curve

○ A change in tastes

○ Change in number of buyers

○ Increase of decrease of income

■ Normal goods: direct correlation

■ Inferior goods: indirect correlation

○ Price of related goods

■ Substitutes, coke and pepsi

■ Compliments, peanut butter and jelly

○ Expectations: views about future income and prices

● Inferior goods: goods whose demand varies inversely​ with income ○ Example: fast food Don't forget about the age old question of What is electric charge and electric field?
We also discuss several other topics like What challenges exist that can make your analysis inadmissible in court?

● Superior goods: product whose demand varies directly​ with income ○ Example: caviar We also discuss several other topics like Conspiracy theories are the theory of what?

● Change in quantity supplied: a movement from one point to another along a fixed demand curve

● Supply curve: represents amount producers are willing and able to produce, has a positive slope

● Law of supply: other things equal firms will produce and offer for sale more of their product at a high price than at a low price

● Determinants of Supply: causes a shift in the supply curve

○ Resource prices: a rise in prices will cause a decrease in supply ○ Technology: technological improvement → more efficient production and lower costs → increase in supply, rightward shift

○ Taxes and subsidies: high subsidies and lower taxes → increase in supply. Lower subsidies and higher taxes → decrease supply

○ Price of related goods: if price of related good rises, producers might shift production toward the higher priced good, would cause a decrease in supply of original good

○ Producer expectations: expectation of future price can cause increase or decrease of supply

○ Number of sellers: greater number of sellers → greater the supply ● Change in quantity supplied is caused by the price

● Change in supply causes a shift in the supply curve

● Equilibrium: when demand curve and supply curve intersect

○ Market clearing price

○ Efficient allocation

■ Productive efficiency

■ Allocative efficiency

● Consumer surplus: above equilibrium, difference between what a consumer is willing to pay and what they actually pay,extra benefit

● Producer surplus: difference between actual price a producer receives and minimum price to produce the unit

● Shortage: below equilibrium

● Productive efficiency: production in least costly way

○ Price = minimum Average Total Cost (ATC)

■ ATC = total cost / quantity

● Allocative efficiency: producing combination of goods most highly valued ○ Price = marginal cost

● When MR = MC it tells us how much quantity to produce

● Price ceiling: maximum price that can be charged on a good, set by government and prevents prices from performing its rationing function in a FMS, set below equilibrium price

● Price floors: minimum price set by government for the sale of a product, set above market price

Chapter 4 / 5

● Private good: only one person can buy at a time (rivalry), sellers can restrict benefits to people who pay (excludability)

● Public good: nonrival and nonexcludable, example is national defense ● Private market: allocate goods and resources efficiently, people are willing to buy and sellers will produce goods to satisfy

● Externalities: when cost or benefit from production or consumption that occurs to someone other than immediate buyer and seller of the product being produced ● Negative externality: cost imposed without compensation on third parties by the production ro consumption of sellers or buyers

○ Supply side market failure

○ External cost that are passed on to society

○ Supplier does not bare responsibility for these costs

○ Example: pollution

○ Supply curve will shift to the left

● Positive externality: benefit obtained without compensation by third party from the production or consumptions of sellers or buyers

○ Demand side market failure

○ Market fails to include the willingness of third parties who receive the extended benefits

○ Demand curve shifts to the left

○ Example: vaccinations

● Government sometimes need to intervene to offset externalities, it will force economic efficiency by reproducing private sector economic risks. The legal system will protect against

○ Breach of contracts

○ Coercion

○ Blackmail

○ Theft

○ Deception

○ Health and safety violations

● Bureaucracy and inefficiency: public agencies less efficient than private business and tests of profit and loss

● Regulatory agencies: come to be dominated by the industries that were charged with regulating

● Loan guarantees: socializing losses and privatizing gains

● Screening:the efforts of the less informed party to gather information about the more informed party

● Signaling: the efforts of the more informed parties to reveal information about themselves to the less informed party

● Moral hazard: the tendency of one party to a contract to alter their behavior, after it is signed, in ways that could be costly to the other party

○ Example: car insurance

Chapter 6

● Elasticity: ​a measure of responsiveness of one variable to changes in another variable ● Ed = percent change in quantity demanded of X / percent change in price of X ○ (Q1-Q0 / Q0) / (P1 - P0 / P0)

● Midpoint formula for demand elasticity:

○ Ed = (∆ in quantity / (Sum of Q’s / 2)) / (∆ in price / (Sum of P’s / 2)) ● Price elasticity: measure of responsiveness of the quantity demanded of a good to a change in the price of that good

● Percentages: unit free measure, compares responsiveness, don’t use minus sign ● Ed > 1 demand is elastic

● Ed = 1 demand is unit elastic

● Ed < 1 demand is inelastic

● Perfectly elastic

● Perfectly inelastic

● Elastic demand: l e l > 1

○ Price increase → decrease in Q is bigger​ than increase in P

○ Price decrease → increase in Q is bigger​ than decrease in P

○ Price increase → revenue decreases

○ Price decreases → revenue increases

● Inelastic demand: l e l < 1

○ Price increase → decrease in Q is smaller​ than increase in P

○ Price decrease → increase in Q is smaller​ than decrease in P

○ Price increases → revenue increases

○ Price decreases → revenue decreases

● Perfectly competitive markets rarely exist

● Total Revenue = P x Q

○ Inelastic : Price and total revenue move in same direction (price increase, total revenue increase)

○ Elastic: Price and total revenue move in opposite directions (price increase, total revenue decrease

● Determinants of elasticity of demand

○ Substitutability: more substitutes → demand is more elastic

○ proportion : higher proportion of income → demand is more elastic ○ Luxuries or. Necessities: luxury goods → demand is more elastic ○ Time: more time available → demand is more elastic

● Inelastic products have higher profit margins

● Elastic products have lower profit margins

● Elastic supply: producers are responsive to price changes

● Inelastic supply: produces are not responsive to price changes

● Es > 1 supply is elastic

● Es < supply is inelastic

● Es = 1 supply is unit elastic

● Es = percent change in quantity supplied of X / percent change in price of X

● Midpoint formula for supply elasticity:

○ Es = (∆ in quantity / (sum of Q / 2)) / (∆ in price / (sum of P / 2))

● Time is a primary determinant of supply elasticity

● Market period: time immediately after change in market price is too short for producers to respond with a change in the quantity supplied

● Perfectly inelastic supply graph

● Short run: too short to change plant capacity but long enough to used fixed size plant more or less intensively

● Long run: long enough for firms to adjust their plant sizes and new firms can enter ● Supply is more elastic than in market period graph

● Cross elasticity: measures how sensitive purchases of one product (X) are to the change in the price of another product (Y)

● Measures of responsiveness of sales to change in price of another good ○ Substitutes: positive sign

○ Complements: negative sign

○ Independent goods: zero

○ Exy = percent change in quantity demanded of X / percent change in price of product Y

● Midpoint formula of Cross Elasticity

○ Exy = (Qx2 - Qx1) / (Qx2 + Qx1) / (Py2 - Py1) / (Py2 + Py1)

● Measures responsiveness of buyers in change in income

○ Superior good: >1

○ Normal good: 1>0

○ Inferior good: 0>

● Ei = percent change in quantity demanded / percent change in income ● Price discrimination: detailed information about each customer's segments willingness to pay

○ Example: movie theaters

Chapter One: Limits, Alternatives, and Resources 

● Economics: household management, home affairs, involves social behaviors, distribution of goods to satisfy human wants. Everyone will be an economist in life.

● Communism: forces laws and destroys capitalism

● Socialism: gradually arises from the Free Market system and through systematic elimination of a private sector. Socialist believe you can transition from capitalism to socialism without changing character of state, more concerned with distribution of wealth ○ How we ‘slice the pie’

● Capitalism: concerned with creation of wealth

○ Make the pie as big as possible

● Both socialism and communism are based on government resources ● Command system: consists of communism or socialism

○ Production goals

○ Allocation of resources

○ Level of capital good and consumer goods

○ Wages and prices

● When a firm sells a product, they are creating wealth and selling for more money than cost of producing

● If companies don’t produce adequate product, they will go out of business because competitors will do better than them

● Central planning board: decides what goods will be produced, how they’re produced, and who will get the goods

● Free Market System

○ Capitalism: the economics freedom of choice, voluntary exchange (the consumer drives the market), private ownership of resources, profit motive and self interest, and competition

● Market prices direct economics activity

● Scarcity: wants exceed productive capacity

○ Opportunity cost: to have more than one thing, you must pass up the opportunity to get the next best thing

● Utility: satisfaction of consuming a good

● Marginal Analysis: comparisons of MB and MC, used to decide

● Scientific method: observes the real world

○ Hypothesis

○ Test

○ Create a theory

○ Economic principle

■ Statement that enables the prediction of probable effects

● Microeconomics: individual

● Macroeconomics: whole

● Positive economics: focuses on facts and cause and effect

● Normative economics: what ought to be

● Per Capita income: per nation income

● Limited income forces choices

● Economic resources: natural, human, or manufactured resources that go into production ○ Land

○ Labor

○ Capital

○ Entrepreneurial

● Production possibility model: similar to budget line, assumes:

○ full employment: can’t hire anyone

○ fixed resources: can’t discover

○ fixed technology: can’t innovate

○ two good economy: only produce

○ ceteris paribus: everything has to be constant

A B C D E (A,B) → 1P=1R 1R=1 P Pizzas 0 1 2 3 4 (B,C) → 1P=2R 1R=½ P Robots 10 9 7 4 0 (C,D) → 1P=3R 1R=⅓ P (D,E) → 1P=4R 1R=¼ P

● Law of increasing opportunity: production of a product increases, the cost to produce additional units also increases

● MC =∆TC/∆Q

● MR=∆TR/∆C

● Optimal output - marginal benefit = marginal cost

● Accounting profit = total revenue - explicit cost

● Economic profit = total revenue - explicit cost - implicit cost

Chapter 3 

● Market: institution that brings together demanders and suppliers of particular goods and services

● Demand: schedule / curve that shows many amounts of product that consumers are willing and able to buy at each of a series of possible prices during a specific time period ○ Individual demand

○ Market demand

○ To sell more output → lower price

● Law of demand: fundamental behavior

○ Price increase → demand decrease

○ Price decrease → demand increase

○ Diminishing marginal utility: decrease in added satisfaction

○ Income effect: increased purchasing power of money. A lower price allows the buyer to purchase more of the product

○ Substitution effect: lower price gives incentive to substitute the higher priced good for a now lower price good

● Change in demand: shift in demand schedule

● Determinants of demand: what causes a shift in the curve

○ A change in tastes

○ Change in number of buyers

○ Increase of decrease of income

■ Normal goods: direct correlation

■ Inferior goods: indirect correlation

○ Price of related goods

■ Substitutes, coke and pepsi

■ Compliments, peanut butter and jelly

○ Expectations: views about future income and prices

● Inferior goods: goods whose demand varies inversely​ with income ○ Example: fast food

● Superior goods: product whose demand varies directly​ with income ○ Example: caviar

● Change in quantity supplied: a movement from one point to another along a fixed demand curve

● Supply curve: represents amount producers are willing and able to produce, has a positive slope

● Law of supply: other things equal firms will produce and offer for sale more of their product at a high price than at a low price

● Determinants of Supply: causes a shift in the supply curve

○ Resource prices: a rise in prices will cause a decrease in supply ○ Technology: technological improvement → more efficient production and lower costs → increase in supply, rightward shift

○ Taxes and subsidies: high subsidies and lower taxes → increase in supply. Lower subsidies and higher taxes → decrease supply

○ Price of related goods: if price of related good rises, producers might shift production toward the higher priced good, would cause a decrease in supply of original good

○ Producer expectations: expectation of future price can cause increase or decrease of supply

○ Number of sellers: greater number of sellers → greater the supply ● Change in quantity supplied is caused by the price

● Change in supply causes a shift in the supply curve

● Equilibrium: when demand curve and supply curve intersect

○ Market clearing price

○ Efficient allocation

■ Productive efficiency

■ Allocative efficiency

● Consumer surplus: above equilibrium, difference between what a consumer is willing to pay and what they actually pay,extra benefit

● Producer surplus: difference between actual price a producer receives and minimum price to produce the unit

● Shortage: below equilibrium

● Productive efficiency: production in least costly way

○ Price = minimum Average Total Cost (ATC)

■ ATC = total cost / quantity

● Allocative efficiency: producing combination of goods most highly valued ○ Price = marginal cost

● When MR = MC it tells us how much quantity to produce

● Price ceiling: maximum price that can be charged on a good, set by government and prevents prices from performing its rationing function in a FMS, set below equilibrium price

● Price floors: minimum price set by government for the sale of a product, set above market price

Chapter 4 / 5

● Private good: only one person can buy at a time (rivalry), sellers can restrict benefits to people who pay (excludability)

● Public good: nonrival and nonexcludable, example is national defense ● Private market: allocate goods and resources efficiently, people are willing to buy and sellers will produce goods to satisfy

● Externalities: when cost or benefit from production or consumption that occurs to someone other than immediate buyer and seller of the product being produced

● Negative externality: cost imposed without compensation on third parties by the production ro consumption of sellers or buyers

○ Supply side market failure

○ External cost that are passed on to society

○ Supplier does not bare responsibility for these costs

○ Example: pollution

○ Supply curve will shift to the left

● Positive externality: benefit obtained without compensation by third party from the production or consumptions of sellers or buyers

○ Demand side market failure

○ Market fails to include the willingness of third parties who receive the extended benefits

○ Demand curve shifts to the left

○ Example: vaccinations

● Government sometimes need to intervene to offset externalities, it will force economic efficiency by reproducing private sector economic risks. The legal system will protect against

○ Breach of contracts

○ Coercion

○ Blackmail

○ Theft

○ Deception

○ Health and safety violations

● Bureaucracy and inefficiency: public agencies less efficient than private business and tests of profit and loss

● Regulatory agencies: come to be dominated by the industries that were charged with regulating

● Loan guarantees: socializing losses and privatizing gains

● Screening:the efforts of the less informed party to gather information about the more informed party

● Signaling: the efforts of the more informed parties to reveal information about themselves to the less informed party

● Moral hazard: the tendency of one party to a contract to alter their behavior, after it is signed, in ways that could be costly to the other party

○ Example: car insurance

Chapter 6

● Elasticity: ​a measure of responsiveness of one variable to changes in another variable ● Ed = percent change in quantity demanded of X / percent change in price of X ○ (Q1-Q0 / Q0) / (P1 - P0 / P0)

● Midpoint formula for demand elasticity:

○ Ed = (∆ in quantity / (Sum of Q’s / 2)) / (∆ in price / (Sum of P’s / 2))

● Price elasticity: measure of responsiveness of the quantity demanded of a good to a change in the price of that good

● Percentages: unit free measure, compares responsiveness, don’t use minus sign ● Ed > 1 demand is elastic

● Ed = 1 demand is unit elastic

● Ed < 1 demand is inelastic

● Perfectly elastic

● Perfectly inelastic

● Elastic demand: l e l > 1

○ Price increase → decrease in Q is bigger​ than increase in P

○ Price decrease → increase in Q is bigger​ than decrease in P

○ Price increase → revenue decreases

○ Price decreases → revenue increases

● Inelastic demand: l e l < 1

○ Price increase → decrease in Q is smaller​ than increase in P

○ Price decrease → increase in Q is smaller​ than decrease in P

○ Price increases → revenue increases

○ Price decreases → revenue decreases

● Perfectly competitive markets rarely exist

● Total Revenue = P x Q

○ Inelastic : Price and total revenue move in same direction (price increase, total revenue increase)

○ Elastic: Price and total revenue move in opposite directions (price increase, total revenue decrease

● Determinants of elasticity of demand

○ Substitutability: more substitutes → demand is more elastic

○ proportion : higher proportion of income → demand is more elastic ○ Luxuries or. Necessities: luxury goods → demand is more elastic ○ Time: more time available → demand is more elastic

● Inelastic products have higher profit margins

● Elastic products have lower profit margins

● Elastic supply: producers are responsive to price changes

● Inelastic supply: produces are not responsive to price changes

● Es > 1 supply is elastic

● Es < supply is inelastic

● Es = 1 supply is unit elastic

● Es = percent change in quantity supplied of X / percent change in price of X ● Midpoint formula for supply elasticity:

○ Es = (∆ in quantity / (sum of Q / 2)) / (∆ in price / (sum of P / 2))

● Time is a primary determinant of supply elasticity

● Market period: time immediately after change in market price is too short for producers to respond with a change in the quantity supplied

● Perfectly inelastic supply graph

● Short run: too short to change plant capacity but long enough to used fixed size plant more or less intensively

● Long run: long enough for firms to adjust their plant sizes and new firms can enter ● Supply is more elastic than in market period graph

● Cross elasticity: measures how sensitive purchases of one product (X) are to the change in the price of another product (Y)

● Measures of responsiveness of sales to change in price of another good ○ Substitutes: positive sign

○ Complements: negative sign

○ Independent goods: zero

○ Exy = percent change in quantity demanded of X / percent change in price of product Y

● Midpoint formula of Cross Elasticity

○ Exy = (Qx2 - Qx1) / (Qx2 + Qx1) / (Py2 - Py1) / (Py2 + Py1)

● Measures responsiveness of buyers in change in income

○ Superior good: >1

○ Normal good: 1>0

○ Inferior good: 0>

● Ei = percent change in quantity demanded / percent change in income ● Price discrimination: detailed information about each customer's segments willingness to pay

○ Example: movie theaters

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