Econ 221 Exam 1

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  1. Economics
    Study of choices people make to attain their goals, given their scarce resources
  2. F.A. hayek
    Pencil- all the components
  3. Hobbseian Jungle
    Having to live in fear, protecting everything
  4. Scarcity
    Unlimited wants exceed limited resources
  5. Unintended consequence
    Cobra head- too many cobras if it gets cancelled
  6. Market Adjustment
    Will go around to find cheaper buys. if no one wants to buy it, price decreases
  7. Signals
    Information & contextual info.
  8. money vs equal share
    intensity of preference vs. some people don't care
  9. choice
    • we are the choices we end up making.
    • ex.) picking a major & not getting that job
  10. Confounding variable
    • ex) Pot leads to cocaine
    • It most likely doesn't
  11. Substitues
    • goods and services that can be used for the same purpose
    • ex: no subs for oxygen
  12. Marginal Analysis
    involves comparing marginal benefits & marginal costs
  13. marginal cost vs marginal benefit
    Don't want the cost to be greater than the benefit]
  14. Perfect Competition
    • Built on key assumptions:
    • buyers and sellers
    • all products sold are identical
    • no barriers to entry
  15. example of no barrier to entry
    can't have a brewery without getting licensed
  16. Markets with comp
    • Barber shops
    • farmers
  17. Markets without competition
    • gas
    • chipotle vs tbell
  18. Law of Demand
    • if price of a good increases, holding other things constant, the quantity demanded will decrease.
    • Vise- versa
  19. Change in price
    Moves along the curve
  20. Normal Goods
    Good for which demand increases as income rises
  21. Inferior goods
    good for which the demand increases as income falls
  22. What shifts demand?
    • Number of consumers
    • Taste and preferences
    • Change in income
    • Change in price of related/complementary good
    • Expectations
  23. What happens to the demand curve if price changes?
  24. Quantity Demanded
    amount of a good or service that a consumer is willing and able to purchase at a given price
  25. Market Demand
    demand by all the consumers of given
  26. Income effect
    • change in QD from a change in the good's price on consumers purchasing power
    • ex: saving 20 for beer; beer is half price so you buy more
  27. Substitution effect
    • beer price goes down, but liquor stays the same
    • will most likely buy more beer
  28. Price Elasticity
    the amount by which people increase/decrease their purchases when price changes
  29. Elastic Good
    • Price will affect your purchase
    • ex: soda, food
  30. inelastic good
    • You'll buy it no matter the price
    • ex: gas, meds, cigs
  31. Elasticity eqn
    %Change in Q

    %Change in P
  32. <1
    • Inelastic
    • Unit elastic
    • Elastic
  33. Quantity Supplied
    Amount supplied of a good/service that a firm is able to supply at a given price
  34. Law of Supply
    • Rule that everything else is constant, increases in price causes an increase in the quantity supplied
    • Decreases in the price cause decreases in Q supplied
  35. What shifts supply?
    • cost of resources/inputs
    • technological change(usually positive)
    • #of firms in the market
    • price substitutes (iphone vs ipad)
    • expected future prices
  36. market equilibrium
    Situation in which QD equals QS
  37. Surplus
    QD is less than QS
  38. Shortage
    QD is greater than QS
  39. Opportunity Costs
    • Highest valued alternative that must be given up to engage in an activity
    • the next best thing you can do
  40. Sunk Cost
    • The nonrecoverable cost that was incurred in the past and reflects no current opportunity for choice
    • ex:bad date or wedding cost
  41. Private Property
    • Right to exclusive use of property
    • legal protection
    • right to transfer, sell, or exchange property
  42. Production possibilities Frontier (curve) -PPC/PPF
    • curve outlines all possible combinations of total outputs that could be produced assuming:
    • A fixed amount of productive resources
    • given amount of technical knowledge
    • full and efficient use of those resourfc
  43. Slope
    How much 1 product given up to produce more of the other
  44. ex. of PPF/PPC
    Grade in econ vs. grade in accounting
  45. Invention
    Creation of a new product or process because of knowledge in engineering or science
  46. Innovation
    Successful introduction and adoption of a new product or process
  47. Entrepeneur
    • Introduces new products or improved tech. and decides which projects to undertake
    • success=profits
    • failure=loss
  48. Creative Destruction
    replacement of old products and production methods by innovation new ones that customers judge to be superior
  49. Creative Destruction example
    Reels > VHS > DVD > Netflix
  50. Division of Labor
    • Specialization.¬†
    • Breaks down specific tasks each performed by a different worker
  51. Comparative Advantage
    • the total output of individuals will be greatest when output is produced by a person with lower opportunity cost
    • ex:I answer the door not president, college student goes to florida instead of lawyer
  52. Absolute Advantage
    Ability of an individual to produce more of a good or service than its competitors using the same resources
  53. Consumer Surplus
    Difference between the highest price a consumer is willing to pay and the actual price the consumer pays
  54. Producer Surplus
    Difference between lowest price of a firm would be willing to accept & the price it receives
  55. Money
    Medium of exchange
  56. What are the characteristics of money?
    • Durable
    • Divisible
    • Unit of Account
    • Store of Value
  57. Interest
    • Cost of borrowing money
    • Reward for delaying consumption
  58. Tariff
    Tax imposed by government on imports
  59. Imports
    Goods and services bought domestically but produced in other countries
  60. Exports
    Goods and services produced domestically but sold in other countryies
  61. The study of economics arises due to:
    • a) greed
    • b) resources
    • c) scarcity
    • D) money

    c) scarcity
  62. Increase in demand moves
    Left to right
  63. Quantity Demanded
    change of price
  64. Change in demand
    Pizza cures cancer, more people are willing to buy it
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Econ 221 Exam 1
econ exam 1
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