Econ 1200 Midterm Exam

Econ 1200 Midterm Exam - Econ 1200 Midterm Exam Study Guide...

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Econ 1200 Midterm Exam Study Guide Chapter 1: Economics: study of scarcity and social implications of scarcity Scarcity: unlimited wants exceed limited resources available to satisfy those wants o Implications of scarcity: Choices: tradeoffs (e.g. time is scarce what do you do with it) Costs: what you give up Competition: self interested behavior everyone can’t get what they want Opportunity cost: highest valued alternative that must be given up to engage in that activity or is given up to engage in that activity or is given up because of the choice or decision Rules of the Game: what gets produced and who gets it Rationing devices: decide who gets the goods/services Markets: where buyers/sellers gather and trade o Markets generate prices Prices discriminate if you don’t like it/can’t afford it, you don’t get it o Goods rationed to those with the willingness and ability to pay o Prices are signals and create incentives Adam Smith: o An Inquiry into the Nature and Causes of the Wealth of Nations (1776) o No Hamlet without the Prince: No economics without understanding people o Human Nature: Basic Desire to Better Themselves o Propensity to “Truck, Barter and Exchange” o One of the most cited statements in Economics: o “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner but from their regard to their own self interest.” o Self interest not the only human motivation but most consistently powerful. o Society must not rest it the noblest of intentions, rather use the strongest motives in the best possible way. o “To increase the Wealth of Nations, Smith argue[d] that society should exploit these natural drives.” New Ideas from Dead Economists p.20 Chapter 3 Demand: Max amount of a product buyers are willing/able to purchase over some time period at various prices, holding all relevant factors constant o Demand goes up when price goes down; demand goes down when prices goes up (holding all relevant factors constant) law of demand
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Demand shifters: when one of these things changes, the entire demand curve changes o Tastes/preferences o Income o Price of related goods o Number of buyers o Expectations of future prices, income, and product availability Normal goods: a good for which increase in income results in rising demand (ex: iPad’s, vacations, expensive clothes) Inferior goods: a good for which an increase in income results in declining demand Substitute goods: goods consumers will substitute for one another depending on their relative prices o Price of one good rises; demand of the other good increases (vise versa) o Ex: price of concert tickets rise, demand for movie tickets increases Complementary goods: goods that are typically consumed together o Price of one good increase, demand for the other good decreases o
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