Econ-305-Midterm.docx - Econ 305 Midterm#1 Vocab Notes Lecture#1-Introduction Microeconomics study of how markets work Scarcity there is a finite number

Econ-305-Midterm.docx - Econ 305 Midterm#1 Vocab Notes...

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Econ 305 Midterm #1 Vocab & Notes Lecture #1-Introduction: Microeconomics- study of how markets work Scarcity- there is a finite number of resources available (it forces us to make choices b/c our wants are unlimited) Production Possibility Frontier: a snapshot of the maximum amount of production the economy can produce given the resources and technology available Three Important Feature to PPF: o It’s a snapshot of the economy at a point in time; population, technology, and resources are fixed o Downward sloping o Has a concave shape Annual GDP: total value of all goods & services produced domestically in a given year Invisible Hand Theorem: “if everyone specializes in what they do best and trades with everyone else in the economy, then society’s output will be as large as it can possible be, given the available resources and technology.” – Adam Smith
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Lecture #2-Growth & Demand: Growth Rate: Diminishing Marginal Returns: the amount of capital output a worker can produce depends on how much capital & other inputs the worker has. In general, diminishing marginal returns state that as more of a single input is used, less additional output is produced, holding everything else (technology, other inputs) constant. o Marginal return: shows how much output per worker changes in the extra capital per worker o Capital is physical tools of production such as buildings, machinery, factories, and equipment o Y= f(k), where y is output per worker & k is capital per worker o Marginal return: (change in y)/(change in k) Competitive Market for An Output: the supply of a good is determined by firms producing a good whereas the demand for a good is determines by consumers who wish to consume it.
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