ECON 2020 FINAL EXAM STUDY GUIDE

EXAM 1: Chapters 1, 2, 3, and 5

Define economics-- the study of how society manages its scare resources

Opportunity cost- whatever must be given up to obtain some item

Absolute advantage- the ability to produce a good using fewer inputs than another producer

Comparative advantage- Comparative advantage- the ability to produce a good at a lower

opportunity cost than another producer *trade can benefit everyone in society because it allows

people to specialize in activities in which they have the comparative advantage

Causes of economic growth (PPF)- an increase in available resources; technological

improvement

Laws of Supply- the claim that other things equal the quantity supplied of a good rises when the

price of the good rises

Laws of Demand- the claim that, other things equal, the quantity demanded of a good falls when

the price of a good rises

∆ D (a schedule showing the amounts of a good or service that buyers wish to purchase at various

prices during some time period) or ∆ S (a schedule showing the amounts of a good or service that

sellers will offer at various prices during some period) vs. ∆ Qd or ∆ Qs- the # of units in which

consumers/producers to buy/sell at a specific price

Factors that shift S- input/resource prices; technology; expectation of future prices; expectation

of future prices; number sellers

Factors that shift D- income (normal and inferior goods); price of related goods; expectations of

future prices; number of buyers; change in tastes and preferences

Market analysis (S and D shifts)- SHIFTS in the supply curve- INPUT PRICES- price of an

input rises producing goods becomes less profitable and firms will supply less TECHNOLOGY-

advances in technology can make producing a good more efficient and less expensive and

therefore the firm will produce more of it EXPECTATIONS- if a firm believes the price of a

good to rise then they may supply less of their good today and more later b/c they will make a

greater profit; SHIFTS in the demand curve: INCOME- if demand for a good rises when income

falls the good is an inferior good but if the demand for a good falls when income falls the good is

called a normal good. PRICES OF RELATED GOODS- when a fall in the price of one good

reduces the demand for another good the two good are called substitutes. When a fall in the price

of one good raises the demand for another good the two goods are called complements TASTES-

determinant of your demand if you like something a lot you’ll buy more of it EXPECTATIONS-

expectations about the future may affect your demand for a good or service today NUMBER OF

BUYERS- the more number of buyers there are in a market the more quantity demanded and the

higher the price

Economic cost- a payment that must be made to obtain and retain the services of a resource;

explicit (the monetary payment a firm must make to an outsider to obtain a resource) and implicit

(the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the

resource in the market) cost

Equilibrium (Qs = Qd)- on the indifference curve, the combo of two goods a which a consumer

maximizes his or her utility (reaches the highest attainable indifference curve) given limited

amount to spend (a budget constraint)

Surplus- a situation in which Qs > Qd

Shortage- a situation in which quantity demanded is greater than Qd > Qs

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ECON 2020 FINAL EXAM STUDY GUIDE

EXAM 1: Chapters 1, 2, 3, and 5  Define economics- - the study of how society manages its scare resources  Opportunity cost- whatever must be given up to obtain some item  Absolute advantage- the ability to produce a good using fewer inputs than another producer  Comparative advantage- Comparative advantage- the ability to produce a good at a lower opportunity cost than another producer *trade can benefit everyone in society because it allows people to specialize in activities in which they have the comparative advantage  Causes of economic growth (PPF)- an increase in available resources; technological improvement  Laws of Supply- the claim that other things equal the quantity supplied of a good rises when the price of the good rises  Laws of Demand- the claim that, other things equal, the quantity demanded of a good falls when the price of a good rises  ∆ D ( a schedule showing the amounts of a good or service that buyers wish to purchase at various prices during some time period ) or ∆ S ( a schedule showing the amounts of a good or service that sellers will offer at various prices during some period ) vs. ∆ Qd or ∆ Qs- the # of units in which consumers/producers to buy/sell at a specific price  Factors that shift S- input/resource prices; technology; expectation of future prices; expectation of future prices; number sellers  Factors that shift D- income (normal and inferior goods); price of related goods; expectations of future prices; number of buyers; change in tastes and preferences  Market analysis (S and D shifts)- SHIFTS in the supply curve- INPUT PRICES- price of an input rises producing goods becomes less profitable and firms will supply less TECHNOLOGY- advances in technology can make producing a good more efficient and less expensive and therefore the firm will produce more of it EXPECTATIONS- if a firm believes the price of a good to rise then they may supply less of their good today and more later b/c they will make a greater profit; SHIFTS in the demand curve: INCOME- if demand for a good rises when income falls the good is an inferior good but if the demand for a good falls when income falls the good is called a normal good. PRICES OF RELATED GOODS- when a fall in the price of one good reduces the demand for another good the two good are called substitutes. When a fall in the price of one good raises the demand for another good the two goods are called complements TASTES- determinant of your demand if you like something a lot you’ll buy more of it EXPECTATIONS- expectations about the future may affect your demand for a good or service today NUMBER OF BUYERS- the more number of buyers there are in a market the more quantity demanded and the higher the price  Economic cost- a payment that must be made to obtain and retain the services of a resource; explicit (the monetary payment a firm must make to an outsider to obtain a resource) and implicit (the monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market) cost  Equilibrium (Qs = Qd)- on the indifference curve, the combo of two goods a which a consumer maximizes his or her utility (reaches the highest attainable indifference curve) given limited amount to spend (a budget constraint)  Surplus- a situation in which Qs > Qd  Shortage- a situation in which quantity demanded is greater than Qd > Qs

EXAM 2: Chapters 1, 3, 6, and 7  Consumer Surplus- the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. Consumer surplus is the area above the price and below the demand curve. An increase in consumer surplus is composed of 2 parts (1) when a lower price occurs the buyers already in the market are better off and (2) new buyers enter the market and quantity demanded in the market increases. CONSUMER SURPLUS= Value to buyers-Amount paid to buyers  Producer Surplus- the amount a seller is paid for the good minus the seller’s cost of providing it. The area below the price and above the supply curve measures the producer surplus in a market. Consumer surplus and producer surplus are the basic tools that economists use to study the welfare of buyers and sellers in a market. PRODUCER SURPLUS= Amount received by sellers- Cost to sellers  Total utility- the total amount of satisfaction derived from the consumption of a single product or a combination of products  Marginal utility- the extra utility a consumer obtains from the consumption of one additional unit of a good or service; equal to the change in total utility divided by the change in the quantity consumed  Income formula-  Budget line graph- a schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income  Optimal consumption graph-  Utility-maximization rule- to maximize satisfaction the consumer should allocate his or her money income so that the last dollar spent on each product yields that same amount of extra (marginal) utility  Relative price rule- if the relative price of a product rises, the demand for that product will decrease EXAM 3: Chapters 6, 8, 9, and 17  Midpoint formula- calculates elasticity change in quantity change in price Ed=  ( sum of quantities / 2) (sum of prices / 2)  Elasticity- a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants; how consumers respond to changes in variables that change demand o Elastic- a good is ELASTIC if the quantity demanded responds substantially to changes in the price) **ELASTIC SUBSTANTIAL = RESPONSE IN DEMAND (b/c there are other alternatives)

 SR profit maximization for perfect comp.- o Total-Revenue-Total-Cost Approach- o Marginal-Revenue-Marginal-Cost Approach- a method of determining the total output where economic profit is a maximum (or losses are a minimum) by comparing the marginal revenue and the marginal cost of each additional unit of output  Profit maximization rule (MR=MC)- the principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost  Factors that shift LR cost curves- EXAM 4: Chapters 9, 10, and 11  LR competitive equilibrium- the price at which firms in pure competition neither obtain economic profit nor suffer losses in the long run and the total quantity demanded and supplied are equal; a price equal to the marginal cost and the minimum long-run average total cost of producing the product  Profit- the return to the resource entrepreneurial ability (normal profit); total revenue minus total cost (economic profit)  MR for a monopoly- marginal revenue is less than price in a monopoly; the pure monopolist can increase sales only by charging a lower price which means marginal revenue is less than price for every unit of output except the first  Profit max for a monopoly- MR = MC rule; Profit maximization:>the intersection of the marginal-revenue curve and the marginal- cost curve determines the profit maximizing quantity>when marginal cost is less than marginal revenue the firm can increase profit by producing more units>in monopolized markets price exceeds marginal costs>Monopolies profit is: (Price- Average Total Cost) X Q and is represented on a graph as a rectangular boxThe Welfare Cost of Monopoly>the monopolist produces less than the socially efficient quantity of output and this is reflected by the monopolist choosing to produce at the level where MR=MC  Profit max for monopolistic comp.- EXAM 5: Chapters 13, 14, 16, 17, and 18  Finding L (labor) (perf. comp.)-*  Finding L and W (wage) (monopsony)-**  Monopsony graph- Monopsony- a market in which a single employer of labor has substantial buying (hiring) power; o There is only a singe buyer of a particular type of labor

o This type of labor is relatively immobile, either geographically or because workers would have to acquire new skills o The firm is a “wage maker” because the wage rate it must pay varies directly with the number of workers it employs  Monopsony table-  Externalities graph- Externality- the uncompensated impact of one person’s actions on the well- being of a bystander o Negative externalities i.e. pollution- certain amount of smoke enters the atmosphere, the smoke creates a health risk for those who breathe the air and it is a negative externality in which the social cost to society is larger than the cost to producers of the products that are emitting the pollution. **Negative externalities lead markets to produce a larger quantity than is socially desirable. o Positive externalities - such as education in which there are benefits to society produces more human capital or a more knowledgeable society, lowers crime rate, development of technological advances-the market produces a quantity smaller than what is socially desirable, the social value is more than the private sectors value, the optimal output amount is higher than the market equilibrium quantity. ** Positive externalities lead markets to produce a smaller quantity than is socially desirable.  Public goods table- Public goods- goods that are neither excludable nor rival in consumption or people cannot be prevented from using a public good and one person’s use of the good does not reduce another person’s ability to use it ex: tornado siren, national defense, and uncongested, no toll roads

Final Exam Study Guide - Principles of Microeconomics | ECON 2020, Study notes of Microeconomics

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Download Final Exam Study Guide - Principles of Microeconomics | ECON 2020 and more Study notes Microeconomics in PDF only on Docsity!

ECON 2020 FINAL EXAM STUDY GUIDE

EXAM 3: #5, 6, 8, 11, 13, 14, 16, 17, 20,

EXAM 4: #3, 4, 5, 6, 7, 8, 10, 11, 13, 15,

EXAM 5: #1, 4, 6, 8, 9, 12, 13, 16, 17, 21,