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AU - ECON 150 - Study Guide - Midterm

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AU - ECON 150 - Study Guide - Midterm

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background image Economics 150: Exam 1 Study Guide (Ch. 1-9)  Ch. 1: The Big Ideas  A. Incentives Matter a. People only care about themselves
b. Changing incentives = better than moral suasion 
B. Institutions Affect Incentives a. The invisible hand i. Good institutions = socially beneficial outcomes 1. Why do food trucks come into D.C.?  ii. Bad institutions = socially destructive outcomes 1. Venezuela’s economy & the leader forcing ppl. to  push down price of toilet paper  C. Tradeoffs Are Everywhere a. Opportunity cost: to get something, you have to give up  something else i. Why college enrollments rise during recessions? ii. Why do more students want make-up exams for midterms  than finals?  D. Marginal Benefits & Costs a. Do you need water? i. When you’re thirsty: Yes ii. When you’re feeling fine: Ok iii. When you just drank a lot of water: Ew (Marginal Benefit is dropping) b. Why do people pay more for diamonds tha water?  ***More Practice Problems on pg. 11 of textbook Ch 2: The Power of Trade Comparative Advantage A. The Power of Trade a. Different Preferences (resources move from low-value to high- value) b. Different Production Costs (cheaper to produce items)
c. Division of Knowledge: ppl. can specialize (increase total 
knowledge) ***Restricting trade partners causes things to become mediocre.
***More trading partners = more knowledge
B. Comparative Advantage vs Absolute Advantage a. Comparative: produce a lower opportunity cost
b. Absolute: produce using fewer inputs 
C. Trade = mutually beneficial  a. Trade is in your self-interest. (invisible hand)
b. As you lower cost of producing 1 thing, you raise the cost 
of producing everything else. c. You’ll always have a comparative advantage in  something!!
background image ***More Practice Problems on pg. 22 of textbook Ch 3: Demand Supply A. Demand  a. Know what increasing & decreasing demand does to the graph 
b. Shifting demand (know what it does to the graph)
i. Income (normal goods) ii. Income (inferior goods) iii. Price of substitutes iv. Price of complements v. Expectations of future prices vi. Number of buyers vii. Tastes  B. Supply a. Know what decreasing and increasing supply does to the graph
b. Shifting supply 
i. Input prices ii. Expectations of future prices iii. Number of sellers iv. Opportunity costs C. Equilibrium a. Surplus 
b. Shortages
c. Market is in equilibrium b/c there is no pressure for price change
d. Buyers and sellers together create prices
e. Shortages and surpluses are due to pricing problems 
D. Changes in Equilibrium a. Understand where the new equilibrium is when there are  surpluses or shortages b. Chicken wing example from class ******More Practice Problems on pg. 45 of textbook Ch 4:  Efficient Application: Energy Independence Application: Price Gouging
Application: Relationship
A. Efficiency a. Consumer surplus vs. producer surplus vs. social surplus  B. Price gouging a. In a shortage, raise prices or else there will continue to be  shortages C. China’s 1 child policy a. More males, therefore ppl. save incomes to buy a good bride due to a shortage of girls  ******More Practice Problems on pg. 65 of textbook

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School: American University
Department: Economics
Course: Economics for Business
Professor: Daniel Lin
Term: Spring 2019
Tags: Economics, Econ, Economics150, and Econ150
Name: Econ 150 Exam 1 Study Guide
Description: This Study Guide covers the main points of Ch 1 - Ch 9, which will be on our exam. Ch 7 will not be tested.
Uploaded: 02/12/2019
4 Pages 36 Views 28 Unlocks
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