Demand
What is the law of demand?
As price changes, quantity demanded changes inversely. Ceteris Peribus
What is the law of supply?
As price changes, quantity supplied changes directly. Ceteris Peribus
What is specialization?
When a country/firm/individual decides to produce one thing and becomes efficient in that
What is the definition of economics
How people make choices under conditions of scarcity
What is opportunity cost?
The second best choice you give up for the choice you make
What causes a movement along the demand curve?
(∆Qd)
Price
What is the market supply curve?
All individual supply curves added together in a market
What is absolute advantage?
The ability to produce the same quantity of a good/service using fewer resources.
What is scarcity?
The economic principle that, people have unlimited wants and needs but limited resources
Does empirical evidence matter and why?
Yes, you cannot have a claim without backing it up with data
What is the law of diminishing marginal benefit and what does it relate to?
As you consume more of a good/service, the additional benefit you receive per unit decreases.
It is the reason the Demand curve is downward sloping
True or False?
The supply curve is the same as a firms MC
True
What is comparative advantage?
The ability to produce a good/service at a lower opportunity cost compared to other producers
What is a PPF?
Production Possibilities Frontier
Positive vs Normative
Positive means something that is testable
Normative means something that is an opinion (usually has the word should)
What is the mkt demand?
The market demand curve is all the individual demand curves in the mkt added together
What is the principle of rising MC?
The more of an activity you do (or G/S you consume) in a given time period, the higher the additional cost of another unit.
Who has the comparative advantage and absolute advantage if:
JJ can brew 24 beers or cook 14 pizzas
Alex can brew 18 beers or cook 28 pizzas
Should they trade?
JJ has the comparative advantage in brewing beer
Alex has the comparative advantage in making pizza
Yes they should trade
What are the two branches of economics?
Microeconomics and Macroeconomics
What does it mean to say that people are rational?
Everyone weighs the expected benefits and expected costs of a decision and only act if xbenefits>xcosts
What are the shifters of demand?
• Income
-Normal: As income increases (decreases), demand increases (decreases). Direct relationship. Ex:
-Inferior: As income increases (decreases), Demand decreases (increases). Inverse relationship. Ex: 1 ply toilet paper, SPAM, ramen, off brand or store brand
• Prices of related goods:
-Compliments (comps): Goods ppl tend to consume together.
-If goods a & b are comps, then if Price of A increases, D for B decreases (inverse relationship). Ex: Oreos and milk, Hamburgers and buns, coffee and sugar
-Substitutes (subs): Goods that are subs for each other
-Goods x & y are subs, If price of x increases, demand of y increases (direct relationship).
-Ex: Coke and Pepsi, different brands of the same good for subs
• Consumer preferences: Cons preferences can change because of weather/seasons
• Number of consumers in the mkt: More consumers in the mkt, demand increases
• Expectations: suppose there’s a winter storm coming this weekend, the demand for bread, milk, PB, J increases
What are the shifters of supply?
Input prices: If input prices increase, supply decreases
Technology: better tech, supply increases
# Of sellers in the mkt
Gov intervention: Gov tax- supply decreases, Gov subsidy- supply increases
-# of regulations in the market
Weather/seasons
They will be worse off, free trade creates wealth.
What is the distinction between Micro and Macro?
Micro- deals with how individual firms and persons make decisions in the mkt
Macro- deals with the grander economy (GDP, inflation, interest rates)
Is it a bad thing that people are self-interested?
Not necessarily, when people make decisions that best suit them it may actually lead to the market being better off.