review 1(5) - Econ 162-A1, A2 Fall 2015 Kenny Christianson...

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Econ 162-A1, A2Kenny ChristiansonFall 2015exam date: October 9REVIEW SHEET FOR MIDTERM ONE*PPC problem set #1, problem 5Concepts to know for midterm:normal and inferior goods – normal goods are goods that will be bought regularly and ifincome increases more normal goods will be bought. Opposite for inferioreconomics – the study of the choices that arise from scarcity. Model building process tosimplify the worldscarcity – when there is a limited amount of resources in a marketcomplements – a good that goes well with another good. Indirect relationship betweenprice of complement and demand of other goodsubstitutes – a good that can replace another good. Direct relationship between price ofsubstitute and demand of other gooddeterminants of demand – price of the good, price of substitutes and complements,income, tastes and expectations, populationdeterminants of supply – price of the good, price of resources, technology, businessexpectations, number of firms in the market, prices of related goodstechnologyINPUT/resources (land, labor, capital, entrepreneurship)OUTPUT/goods & services(rent, wage, interest, profit)microeconomics – the study of individual decision-making by households and firms andhow they interact in marketsmacroeconomics – the study of aggregate economic variables and they affect each othershortage – when the quantity demanded is greater than the quantity suppliedsurplus – when the quantity demanded is less than the quantity suppliedpositive economics – descriptions of factnormative economics – the statement of opinionsprice floor – government sets a minimum price above the market price causing a surplusprice ceiling – government sets a maximum price below equilibrium causing a shortageeconomic good – a good that has value due to scarcity

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