econ study guide - Econ Study Guide A Economics study of...

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Econ Study Guide A. Economics : study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided; part of behavioral or social science; study of how people make choices Macroeconomics : regional, national, international, focuses on long term changes (prices, output, population) and short term changes (output, prices, employment) Microeconomics : smallest possible unit, small scale B. Malthusian Population Theory : the population will grow at a geometric rate while the food supply will grow at an arithmetic rate, aka there will be poverty in the future. Didn’t consider food technology; fixed supply would lead to diminishing returns Positive Checks : event that we increase mortality rate (disease, war, famine) Preventive Checks : event that we lower birth rate (abstinence, later marriage) Law of Diminishing Returns : hold all factors constant and change one, capital stock remains fixed while labor increases, more labor will lead to less production per person added C. 3 Basic Economic Problems : What gets produced, how does it get produced, and who gets it? Command Economy : central government either directly sets output targets, incomes, and prices Market Economy : laissez faire, lack of government involvement, individual pursues self interest without central direction or regulation; buyers and sellers engage in exchange Factors of Production : Land, Labor, Capital, Entrepreneurship Production Possibilities Frontier : graph that shows all combinations of goods and services that can be produced if all society’s resources are used efficiently, full resources and full employment at least cost; it is below if it there is unemployment or inefficiency, moves up with more resources or new technology Opportunity Cost : the value of your next best choice, what you gave up to get what you got by choosing what you did Increasing Opportunity Cost: demand increases as you move along PPF; it is increasingly difficult to make more Marginal Rate of Transformation : slope of the PPF, the ratio D. Demand : depends on price of product, income available, amount of accumulated wealth, prices of other products, taste and preferences, and future expectations -change in price=change in quantity demanded -change in a factor=change in demand curve Demand Curve : graph illustrating how much of a product a household would buy at different prices, as price goes up quantity demanded goes down Supply: depends on kinds of inputs, amount of each input, and prices of inputs; how much of a product firms will sell at different prices; positive relationship with price and good supplied - cost of production : technological advance lowers cost of productions and increases output, increase of output increases cost of production and decreases supply - price of related products : if price of related products goes up, then the supply of the aforementioned product will decrease Equilibrium : quantity supplied and quantity demanded are equal, no tendency for change in money E. Macroeconomics
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