Final review

Final review - FINAL REVIEW: MICROECONOMICS BEGINNING...

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Unformatted text preview: FINAL REVIEW: MICROECONOMICS BEGINNING Efficiency- Marginal Benefit > Marginal Cost Opportunity Cost- the value of the next best alternative; factor in time & monetary cost Marginal Cost/Benefit- EXTRA cost/benefit Sunk Cost- Costs that have already been incurred & cant be avoided (Room & board, food, etc) Ceteris Paribus- All else equal Production Possibility Frontier (PPF)- graph showing all combinations of goods that can be produced if all of societies resources are fully employed. Productive/Allocative Efficiency o Productive Efficiency- nothing goes to waste, have to be on the PPF o Allocative Efficiency- doing it efficiently, helps society Absolute/Comparative Advantage o Absolute Advantage- a producer has absolute advantage if it can produce using fewer resources. Can produce the most. o Comparative Advantage- a producer has comparative advantage if they can produce a good at a lower opportunity cost. Divide one good by the amount you can produce in the other. Ex. For math: Bob (3/2) and Abe (9/10) Abe gives up less to produce history. Bob Abe Math 3 9 Histor y 2 10 AA Math- Abe AA History- Abe CA Math- Abe (9/10) CA History- Bob (2/3) Demand o Demand- graph showing the quantity a household will be willing to buy at any given price o Quantity Demanded- the amount of a product that a household would buy in a given period if it could buy all that it wanted. o Law of Demand- the negative relationship between a price and quantity. o Non-price Determinants: Income/wealth Tastes/preferences Price of other good Substitutes- P s D Compliments- P comp D Expectation of future Supply o Supply- producers selling o Law of Supply- The positive relationship between quantity supplied and price o Non-price Determinants: Price of Inputs P S Technology CONSUMERS Budget constraints o Be able to find the slope and the intercept o Know what happens when prices or income change o Understand that it represents the market tradeoff Utility o Utility- the satisfaction or reward a product yields o Marginal Utility= U/Q o Law of Diminishing MU- the more of any good consumed, the less utility an additional unit provides Equilibrium o Indifference Curve- a map of all of the points at which utility is the same. o Marginal Rate of Substitution- the amount you require of one good to give up the other good Law of Diminishing MRS- The less you have of something, the more you require to give it up MRS = slope = MUx/MUy Represents the individual tradeoff o Elasticity The responsiveness of one variable to a change in another variable Formula- Q/Avg. Q// P/Avg. P Unitary Elastic Demand- Elasticity of demand=1 Elastic Demand- Elasticity of demand > 1 Inelastic Demand- Elasticity of demand < 1 o Understand equilibrium...
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Final review - FINAL REVIEW: MICROECONOMICS BEGINNING...

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