Key Concepts for Exam 1
Key Concepts for Exam 1 Econ 1051
Popular in General Economics
verified elite notetaker
Popular in Economcs
This 8 page Study Guide was uploaded by Lauren Pike on Monday September 21, 2015. The Study Guide belongs to Econ 1051 at University of Missouri - Columbia taught by George Chikhladze,Martha Steffens in Fall 2015. Since its upload, it has received 250 views. For similar materials see General Economics in Economcs at University of Missouri - Columbia.
Reviews for Key Concepts for Exam 1
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: 09/21/15
Key Concepts for Exam 1 Chapter 1 Limits Alternatives and Choices Economic bersbective individualsinstitutions make rational decisions by comparing marginal costs and benefitscosts of actions 0 opportunity cost value of goodservicetime sacrificed to gain something else 0 utility satisfaction from consuming goodsservices o marginal analysis comparison of extra benefits and costs 0 if marginal cost MC is higher than marginal benefits MB economic activity shouldn t be expanded Microeconomics vs Macroeconomics 0 micro decisionmaking by individual consumershouseholdsbusinesses o macro economy as a wholebasic subdivisionsaggregates Individual s Economic Problem 0 econ problem need for individual to make choices bc wants exceed needs Societv s Economic Problem 0 scarce resources land labor capital entrepreneurial ability used in production of goodsservices 0 types of resources these are known as factors of productioninputs I land gifts of nature I labor physical actionsmental capabilities I capital manmade resourcesproductive equipment I entrepreneurial ability human talent that combines other resources to produce productmake decisionsbear risks Production Possibilities Model 0 consumer goods products that directly satisfy wants 0 capital goods products that indirectly satisfy wants by making production efficient 0 Law of increasing opp costs more of a product society produces the higher the opp cost of obtaining extra unit 0 optimum allocation best combo of consumer and capital goods 0 optimal amount occurs when MBMC indicated by intersection of MB and MC curveslines Chapter 2 The Market System and Circular Flow Economic systems particular set of institutional arrangements and a coordinating mechanism for producing goods and services 0 must decide on o goods produced 0 how they are produced 0 who gets them 0 how to promote tech progress 0 differ based on 0 who owns factors of production 0 method used to motivate set up and direct each economic activity The Command Svstem aka socialism or communism economic system where most property resources are gov owned and economic decisions made by central planning board 0 central board makes nearly all decisions concerning 0 use of resources 0 composition and distribution of output 0 organization of production 0 allocation of capital goods in firms 0 pure command economy relies exclusively on central plan 0 in reality most CEs tolerate some private ownership 0 North Korea and Cuba are last remaining ex of largely centrally planned economies The Market Svstem aka capitalism property resources are privately owned markets and prices used to direct and coordinate economic activity 0 system allows 0 private ownership of capital 0 pnces 0 activity through markets I markets places where buyers and sellers come together to buysell goodsservices 0 competition 0 more options 0 monetary rewards as incentives 0 pure capitalism laissez faire gov role limited to protecting private property and establishing environment proper for market 0 laissez faire let it be Characteristics of the Market Svstem 0 private property freedom of enterprise and choice competition markets and prices tech and capital goods specialization use of resources of an indivregionnation to produce 1 or a few goodsservices rather than entire range 0 human specialization division of labor contributes to society s output 0 types of businesses 0 sole proprietorship business ownedoperated by one person 0 partnership twomore indivs partners ownoperate o corporation legal creation that can acquire resources own assets produce and sell products incur debt extend credit sue and be sued and perform other functions of enterprise Chapter 3 Demand Supply and Market Equilibrium Demand schedulecurve that shows various amounts of a product that consumers will buy at each of a series of possible prices during a specific period buyer s plansintentions w respect to a purchase of a product law of demand as price falls the qty demanded rises and as price rises qty demanded falls inverse relationship determinants of demand factors other than price that locate the position of a demand curve also called demand shifters 0 basic determinants I consumer s taste I of consumers in a market I consumer s income I prices of related goods I expected prices changes in demand 0 income I normal goods goodservice whose consumption rises when income increases and falls when income decreases I inferior goods goodservice whose consumption declines when income rises and rises when income declines I demand for lower quality products declines prices of related goods increasesdecreases depending on demand 0 substitute good one that can be used in place of another good I when 2 products are substitutes an increase in price of one will increase demand for the other 0 complementary good one that is used together w another I if price of a complement increases the demand for related goods will decrease 0 expected prices I customers may buy more now in order to beat anticipated rise changes in qty demanded movement from one point to another on a fixed demand curve cause is an increasedecrease in price of a product under consideration E change in demand change in qty demanded of a product at every price shift in demand curve left or right Supply schedulecurve that shows amounts of products that producers are willing to make available for sale at each of a series of possible prices during a specific period supply curve shifts upward bc producers will offer more of a product for sale as its price rises and less of the product for sale as its price falls law of supply as price increases qty supplied increases and as price decreases qty supplied falls o determinants of supply resource prices tech taxes and subsidies prices of other goods 0 of sellers 0 Changes in qty supplied movement from one point to another on a fixed supply curve E 0 Change in supply change in qty supplied of a product every price shift in supply curve Changes in Suoply Demand and Equilibrium 0 changes in demand 0 increase in demand raises equil price and qty 0 decrease in demand lowers equil price and qty 0 changes in supply 0 increase in supply lowers equil price and raises equil qty 0 decrease in supply raises equil price and lowers equil qty 0 supply increases demand decreases I both changes decrease price I increase in supply gt decrease in demand equil qty will increase I decrease in demand gt increase in supply equil qty will decrease 0 supply decreases demand increases I effect is increase in equil price I if decrease in supply gt increase in demand equil qty will decrease I if increase in demandgt decrease in supply equil qty will increase 0 supply increases demand increases I if increase in supply gt increase in demand equil price will decrease I if increase in demand gt increase in supply equil price will increase I increase in supply and demand both increase equil qty I if 2 changes are and cancel out price won t change 0 supply decreases demand decreases I if decrease in supply lt decrease in demand equil price will increase I if decrease in demand lt decrease in supply equil price will decrease I both reduce equil qty 0 Governmentset prices 0 price ceiling set max legal price a seller may charge for a goodservice I results in shortage 0 price floor min legal price a seller may charge for goodservice I at any price about equil price qty supplied will exceed qty demanded I surplus O O O O Chapter 4 Elasticity of Demand Price elasticity of demand measure of responsiveness of the qty of a product demanded when prices changes elastic demand consumers are very responsive to price changes causes kart changes in qty purchased 0 Ex restaurant meals Inelastic demand consumers pay less attention to price changes large price changes only amuse small change in amount purchased 0 Ex health care Price elasticity coefficient and formula A qty demanded ofx 0 Ed A inprice ofx O E A qty demanded ofx A price ofx 039 original qty demanded ofx original price ofx Midpoints approach ensures consistent results E A 132 A price 0 T 039 sum of quSZ sum ofpriceSZ Extreme cases 0 perfectly inelastic demand change in price causes no change whatsoever in qty demanded Ed 0 o perfectly elastic demand small price reduction causes buyers to increase purchase from zero to all they can get Ed 00 Determinants of Price of Elasticity of Demand substitutability o proportion of income 0 luxuries vs necessities 0 time 0 Chapter 5 Market Failures Market Failures in Competitive Markets demandside failure when demand curves don t reflect consumers full willingness to pay for a goodservice supplyside failure when supply curves don t reflect full cost of producing a goodservice o essentially the market fails to produce optimum amount of product if competitive market is to produce efficient outcomes 0 demand curve must reflect consumers willingness to pay 0 supply curve must reflect all production costs Private and Public Goods private goods goods that ppl individually buy and consumer and that private firms can profitably provide bc they keep those that don t pay from receiving benefits public goods goods everyone can consume from which no one will be excluded even if they don t pay 0 can create freerider program inability of firm to provide a good bc everyone including nonpayers can get benefit 0 negative externalities spillover productionconsumption costs imposed on third parties wo compensation 0 ex environmental pollution o understates total cost of production 0 positive externalities spillover productionconsumption benefits conferred on third parties wo compensation from them 0 too little is produced 0 ex education vaccines Government Intervention 0 direct controls reduce neg ext by passing legislation limiting activity 0 specific taxes 0 subsidies and gov provision Financinci the Public Sector 0 taxation releases resources from production of private consumer goodsprivate investment goods L gov shifts resources from public to quasipublic goods Lgtgov must decide how to apportion tax burden total taxes imposed on society 0 benefits received vs ability to pay 0 benefits received principle households and businesses should purchase goodsservices of gov the same way they buy other commodities I those who benefit most should pay necessary taxes to fund them I ex gas taxes often used to fund road repairs 0 drawbacks I how will gov determine benefits that indiv householdsbusinesses receive from public goods I gov can t logically apply BR principle to some gov programs safety net programs 0 ability to pay principle gov should apportion tax burden according to taxpayer income I we don t know each family s ability to pay Prooressive Prooortional and Regressive Tax 0 marginal tax rate rate paid on each additional dollar of incomepurchases average tax rate total tax paid as of income progressive tax av rate increases as income increases proportional tax av rate remains same regardless of income size regressive tax av rate decreases and income increases tax progressivity in US personal income tax progressive general sales tax regressive corporate income tax proportionalprogressive payroll taxes 88 and Medicare overall regressive 145 for Medicare proportional 42 of 1st 11000 and rest of income untaxed 42gt145 means overall regressive property taxes regressive operate same as sales tax federal tax system progressive state and local taxes largely regressive overall US tax system slightly progressive Chapter 6 Businesses and Their Costs The Business Pooulation 0 plant establishment farm factory mine store website that performs one or more functions in fabricating and distributing goodsservices 0 firm org that employs resources to produce goodsservices for profit and operate 1 or more plants industry group of firms that produce samesimilar products org structure of firms 0 multiplantfirms org horizontally several plants performing same function I ex Coke bottling plants and Walmart stores 0 vertically integrate own plants that perform many different functions in same chain of production I ex Shell owns oil fields refineries and gas stations 0 conglomerate have plants that produce products in several different industries I ex Pfizer makes medicine gum razors mints Advantaoes of Corporations 0 most effective form of business for raising to finance expansions 0 selling of bonds and stocks to pool financial resources of large number of people 0 stock ownership of shares of corp 0 bond certificates indicating obligations to pay principal and interest on loans at specific time in the future 0 provide limited liability to owners risk only what they paid for stock PrincipalAgent Problem 0 PA problem conflict of interest that occurs when agents managers pursue their own objectives to the detriment of the principals stockholders goals Economic Costs 0 economic cost payment that must be made to obtain and retain services of a resource o econ costs explicit implicit costs 0 2 types 0 explicit costs payments firms must make to an outsider to obtain a resource monetary payments 0 implicit costs income firm must sacrifice when it uses a resource in the market value of next best use I also opp costs accounting profit TR total revenue of firm explicit costs econ profit subtracting all econ costs from revenue
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'