Econ 105, Principles of Economics Test one study guide
Econ 105, Principles of Economics Test one study guide Econ 105
Popular in Principles of Economics
Popular in Economcs
verified elite notetaker
This 10 page Study Guide was uploaded by Adrian Berlinski on Thursday March 3, 2016. The Study Guide belongs to Econ 105 at Illinois State University taught by Daria bottan in Fall 2015. Since its upload, it has received 73 views. For similar materials see Principles of Economics in Economcs at Illinois State University.
Reviews for Econ 105, Principles of Economics Test one study guide
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: 03/03/16
CHAPTER 1 Intro: what is economics? Scarcity The resources we use to produce goods and services are limited. (EX. You have limited amount of time. each hour on the job means one less hour for study or play. Economics The study of choices when there is scarcity. Factors Of Production The resources used to produce goods and service; also known as production inputs, or resources. Natural resources Resources provided by nature and used to produce goods and services. Labor Human effort, including both physical and mental effort people, used to produce goods and services. Physical Capital The stock of equipment, machines, structures, and infrastructures that is used to produce goods and services. Human capital The knowledge and skills acquired by a worker through education and experience and used to produce services and goods. Entrepreneurship The effort used to coordinate the factors of production natuarl resources, labor, physical capital, and human capital to produce and sell products. Positive Analysis Answers the question “What is?” or “what will be?” (economics without judgement) Normative Analysis Answers the question “what ought to be?” (analysis outcome of economic behavior and evaluates them as good or bad.) The three key economic questions: What, The choices made by individuals, firms, and How, and Who? government answers three questions: 1. What products do we produce? 2. How do we produce the products? 3. Who consumes the products? Economic models A simplified representation of an economic environment, often employing a graph. Economic view of poverty in Africa Africa is the world’s second largest continent in both area and population, and accounts for more than 12% of the world’s human population. Economic view of the current world recession Over the last several decades, the U.S economy has performed well and has raised our standard of living. although the economy faltered at times, policymakers seemed to know how to restore growth and prosperity. How the recession started ● The problem started innocently enough, with a booming market for homes that was fueled by easy credit from financial institutions. ● Later discovered that many purchasers of homes and properties couldn’t afford them, and the trouble spread to banks and other financial institutions. ● As a result businesses found it increasingly difficult to borrow money for everyday use and investment, and economic activity around the world began to contract. Use assumptions to simplify Economists use assumptions to make things simpler and focus attention on what really matters. Variable A measure of something that can take on different values. Ceteris Paribus a latin expression meaning that other variables are held fixed. Thinking at the margin How will a small change in one variable affect another variable and what impact that has on people’s decision making. Marginal change A small, one unit change in value. Rational people respond to incentives A key assumption of most economic analysis is that people act rationally, meaning that they act in their own selfinterest. Macroeconomics The study of the nation’s economy as a whole; focuses on the issues of inflation, unemployment, and economic growth. Using macroeconomics to understand All economies, including ones that economic fluctuations experience a general trend of rising per capita income, are subject to economic fluctuations, including periods when the economy shrinks. using macroeconomics to make informed a manager who studies macroeconomics will business decisions be better equipped to understand the complexities of interest rates and inflation and how they affect the firm. Microeconomics The study of the choices by households, firms, and government and how these choices affect the market for goods and services. Graphing Two variables Positive relationship A relationship in which two variables move in the same direction. Negative relationship A relationship in which two variables move in opposite directions. Slope of a curve The vertical difference between two points(the rise) divided by the horizontal difference(the run). CHAPTER 2: Key Principles of economics Opportunity cost What you sacrifice to get something. Production possibilities curve A curve shows the possible combination of products that an economy can produce, given that its productive resources are fully employed and efficiently used. marginal benefits The additional benefits resulting from a small increase in some activity marginal cost the additional cost resulting from a small increase in some activity. Principles of voluntary exchange a voluntary exchange between two people makes both people better off.(EX. You exchange money for education at college and you think you're better off with an education than the money. Principles of diminishing returns suppose output is produced with two or more inputs, and we increase one input while holding the other input or inputs fixed. Beyond some point called the point of diminishing returns output will increase at a decreasing rate. Real nominal principle What matters to people is the real c=value of money or income its purchasing powernot its “face” value. nominal value The face value of an amount of money Real value The value of an amount of money in terms of what it can buy. The design of public programs Government officials use the realnominal principle when they design public programs. Social security payments indexed to inflation Published statistics are adjusted for inflation Chapter 3 Demand, Supply, and ,market equilibrium Perfectly competitive market A market with many buyers and sellers of a homogenous product and no barriers to entry. Quantity demanded The amount of a product that consumers are willing and able to buy demand schedule A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus. Individual demand curve A curve that shows the relationship between the price of a good and the quantity demanded by an individual consumer, ceteris paribus. law of demand there is a negative relationship between price and quantity demanded, ceteris paribus. Change in quantity demanded a change in the quantity consumers are willing and able to buy when the price changes; represented graphically by movement along the demand curve. quantity supplied The amount of a product that firms are willing and able to sell. Supply schedule A table that shows the relationship between the price of a product and quantity supplied, ceteris paribus Individual supply curve A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus. Law of supply There is a positive relationship between price and quantity supplied, ceteris paribus. Change in quantity supplied A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve. minimum supply curve The lowest price at which product will be supplied Market supply curve A curve showing the relationship between market price and quantity supplied by all firms, ceteris paribus. Market equilibrium A situational in which the quantity demanded equals the equals the quantity supplied at the prevailing market price. Excess demand (shortage) A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied Excess supply (surplus) A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price. Normal good a good for which an increase in income increases demand. Inferior good a good for which an increase in income decreases demand. substitutes two goods for which an increase in the price of one good increases the demand for the other good. complements two goods for which a decrease in the price of one good increase the demand for the other good. Chapter 4 Price elasticity of demand A measure of the responsiveness of the quantity demanded to changes in price; equal to the absolute value of the percentage change in quantity demanded divided by the percentage change in price. elastic demand The price elasticity of demand is greater than one, so the percentage change in quantity exceeds the percentage change in price. inelastic demand the price of demand is less than one, so the percentage change in quantity is less than the percentage change in price. unit elastic demand The price elasticity of demand is one, so the percentage change in quantity equals the percentage change in price. Perfectly inelastic demand The price elasticity of demand is zero. perfectly elastic demand The price of demand is infinite. Total revenue The money a firm generates from selling its product. Income elasticity of demand A measure of the responsiveness of demand to change in consumer income; equal to the percentage change in the quantity demanded divided by the percentage change in income. crossprice elasticity of demand A measure of the responsiveness of demand to changes in the price of another good; equal to the percentage change in the quantity demanded of one good (x) divided by the percentage change in the price of another good(y). Price elasticity of supply A measure of the responsiveness of the quantity supplied to changes in price; equal to the percentage change in the quantity supplied divided by the percentage change in price. What determines the price elasticity of The price elasticity of supply is determined by supply? how rapidly production costs increase as the total output of the industry increase. If the marginal cost increase rapidly, the supply curve is relatively steep and the price elasticity is relatively low. short run supply elasticity A higher price encourages existing firms to increase their output by purchasing more materials and hiring more workers. Long run supply elasticity New firms enter the market and existing firms expand their production facilities to produce more output. Perfectly inelastic supply The price elasticity of supply equals zero. Perfectly elastic supply the price of supply is equal to infinity. Under what conditions will an increase in ● Small increase in demand. demand cause a relatively small increase in ● Highly elastic demand. price? ● Highly elastic supply Under what conditions will a decrease in ● Small decrease in supply. supply cause a relatively small increase in ● Highly elastic demand. price? ● Highly elastic supply. Chapter 5 Economic profit Total revenue minus economic cost. (Economic profit =total revenue economic cost) Economic cost The opportunity cost of the inputs used in the production process; equal to explicit cost plus implicit cost. (Economic cost = explicit cost + implicit cost) Explicit cost A monetary payment. Implicit cost An opportunity cost that does not involve a monetary payment. Accounting cost The explicit cost of production.(Accounting cost = Explicit cost) Accounting profit Total revenue accounting cost. (Accounting profit = Total revenue accounting cost) Marginal product of labor The change in output from one additional unit of labor. Diminishing returns As one input increases while the other inputs are held fixed, output increases at a decreasing rate. Totalproduct curve A curve showing the relationship between the quantity of labor and the quantity of output produced, ceteris paribus. Fixed cost (FC) Cost that does not vary with the quantity produced. Variable cost (VC) Cost that varies with the quantity produced. shortrun total cost (TC) The total cost of production when at least one input is fixed; equal to fixed cost plus variable cost. Average fixed cost (AFC) Fixed cost divided by the quantity produced. Average variable cost (AVC) Variable cost divided by the quantity produced. Shortrun marginal cost (MC) The change in shortrun total cost resulting from a oneunit increase in output. Shortrun average total cost (ATC) Shortrun total cost divided by the quantity produced; equal to AFC plus AVC. Longrun total cost (LTC) The total cost of production when a firm is perfectly flexible in choosing its inputs. Longrun average cost (LAC) The longrun cost divided by the quantity produced. Constant returns to scale A situation in which the long run total cost increases proportionately with output, so average cost is constant. Long run marginal cost (LMC) The change in long run cost resulting from a oneunit increase in output. Indivisible input An input that cannot be scaled down to produce a smaller quantity of output. Economies of scale A situation in which the longrun average cost of production decreases as output increases. Minimum efficient scale The output at which scale economies are exhausted. Diseconomies of scale A situation in which the longrun average cost of production increases as output increase.
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'