Chapter 1
What is economics?
The study of human and choice under scarce resources
What is absolute advantage?
A person, firm, or country that can produce more than another using the same amount of resources
Ceteris Parabis
All Else Equal
How do you calculate total surplus?
Consumer Surplus + Producer Surplus
What are the three economic assumptions?
1) People are rational
2) People respond to incentives
3) People use cost benefit analysis
"""Daily Double"""
Sally produced 60 wheat and 180 corn
John produced 50 wheat and 200 corn
Who has the comparative advantage for wheat? (20s)
Sally
Law of Supply
Increase in price Increases the quantity supplied and vice-versa
What does the demand curve tell us?
How much customers value the good
What is a trade-off?
When a firm, person, or country has to give something up to obtain another
What causes a PPF line to be bowed instead of straight?
Diminishing returns
What does Supply and Demand Framework assume?
Perfect Competition
Who does a price floor benefit?
Producers
Whats the main economic problem?
Finite resources, unlimited wants
How many types of markets are there?
Double if you get which markets they are?
The output market
Factor market
Subtitution Effect
When the price of one good rises relative to other goods, consumers will switch and buy those other goods instead
What is a quota?
a maximum quantity set bu the government, production can be lower but not higher
What are 2 of the 3 questions society has to answer?
1) What is produced
2) How is it produced
3) Who recieves it
What is the rate of which we can switch between the production of goods called?
Marginal Rate of Transformation
Name 5 factors that affect the demand line:
income, population, price of substitutes/complimentary goods, preferences, interest rates, expectation of the future
Why do we still have dead weight loss in suciety even though its not fully efficient?
Socially accepted in society