basic economic concepts
define scarcity
wants are infinite but society's resources are limited
According to the Law of Demand, what is the relationship between the price of a good and the quantity demanded?
There is an inverse (or negative) relationship. As price rises, quantity demanded falls, and vice versa (assume ceteris paribus).
What does the price elasticity of demand/supply measure?
how much the quantity changes in response to a change in price
What is consumer surplus?
Willingness to pay - market price
what is Melonie's favorite series of jellycats?
Ricky rain frog
define opportunity cost
the value of the next best alternative that you gave up for one choice (every choice has a tradeoff)
If coffee and tea are considered substitutes, what will happen to the demand for tea if the price of coffee rises?
the quantity demanded for tea would rise
If a product has very few close substitutes and is a necessity, would you expect its demand to be elastic or inelastic?
inelastic
On a standard supply and demand diagram, what area represents total producer surplus?
The area below the market price and above the supply curve, up to the equilibrium quantity.
Who is the current WTA no. 1?
Aryna Sabalenka
On a Production Possibilities Frontier (PPF), what does a point inside the curve represent?
It represents an outcome that is possible but inefficient for the economy where some resources were not fully utilized.
In a market, what is the term for the price at which the quantity supplied equals the quantity demanded?
equilibrium
list one elastic good and one inelastic good
inelastic: necessities such as rice
elastic: coffee or matcha
what is economic welfare?
the sum of consumer and producer surplus
what are liaohui's other jobs?
1. before school: 学校门口买蛋饼的
2. after school: 开出租车的
What is the key difference between a positive statement and a normative statement in economics?
A positive statement is descriptive (describes the current world) while a normative statement is prescriptive (describes how a world should be).
Describe the difference between a change in demand (shift of the curve) and a change in quantity demanded (movement along the curve).
A change in demand is caused by a non-price determinant (income, expectations of future price, cost of related goods, and tastes) while a change in quantity demanded is only caused by a change in price.
If a business finds that demand for its product is price elastic, what will happen to its total revenue if it raises the price? Why?
Total revenue will decrease. This is because the percentage drop in quantity demanded is greater than the percentage increase in price. The loss in sales outweighs the higher price per unit.
According to welfare economics, what three things does an efficient allocation of resources achieve?
1. Goods are consumed by the buyers who value them most highly (highest WTP). 2. Goods are produced by the producers with the lowest costs. 3. The quantity of goods produced and consumed maximizes the sum of consumer and producer surplus (total surplus).
balance the following reaction: (hint: redox acidic)
Fe(CrO₂)₂ + K₂CO₃ + O₂ + H₂SO₄ → K₂Cr₂O₇ + Fe₂(SO₄)₃ + K₂SO₄ + CO₂ + H₂O
4 Fe(CrO₂)₂ + 8 K₂CO₃ + 7 O₂ + 20 H₂SO₄ → 4 K₂Cr₂O₇ + 2 Fe₂(SO₄)₃ + 4 K₂SO₄ + 8 CO₂ + 20 H₂O
Explain why a Production Possibilities Frontier (PPF) is often drawn as a bowed-out (concave) curve rather than a straight line.
A bowed-out PPF reflects the law of increasing opportunity cost. As an economy produces more of one good, it must use resources that are less suited for producing the other good (eg. specialized workers, specialized land, etc.) Therefore, each additional unit of the good costs a larger amount of the other good to produce.
A significant technological improvement reduces the cost of producing electric vehicles (EVs). What happens to the equilibrium price and quantity of EVs?
As the input price reduces, the supply curve shifts to the right, while the demand curve is not effected. Therefore, as a result of the shift, the equilibrium price decreases and the equilibrium quantity increases.
The supply of beachfront property is highly inelastic, while the supply of manufactured goods like cars is relatively elastic. If demand for both doubles, which market will experience a larger change in price, and which will experience a larger change in quantity?
the beachfront property will experience a larger change in price while the cars will experience a larger change in quantity.
The "invisible hand" suggests the market equilibrium is efficient. However, a price ceiling (a legal maximum price) set below the equilibrium price is a form of government intervention. Explain why such a ceiling leads to a deadweight loss, referencing both the change in quantities and the composition of buyers and sellers.
A price ceiling below equilibrium creates a shortage. The quantity traded falls from the efficient equilibrium quantity (Qe) to a lower quantity (Qc).
At Qc, there are buyers with a willingness to pay (WTP) that is higher than the cost of sellers who are now excluded from the market because of lower prices. Furthermore, the goods may not be allocated to the buyers with the highest WTP, and the sellers with the lowest costs may not be the ones producing, reducing market efficiency.
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