Review for econ exam 1

Review for econ exam 1 - Review for Principles of...

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Review for Principles of Macroeconomics: First Midterm Ariel Singer man February 11, 2008 1 Introduction to Economics _ why does economics exist? Economics is the study of the choices made by individual agents and societies regarding the alternative uses of scarce resources that are employed to satisfy needs. Scarcity forces us to make choices because we must allocate limited resources to satisfy unlimited needs. _ what is the purpose of a model in economics? Which items are included in a model and which items are not? A model is a simplified representation of reality that dispenses us from irrelevant details to the study of the topic under analysis. An economic model illustrates, generally in mathematical terms, relationships among variables. _ what is the difference between Microeconomics and Macroeconomics? Microeconomics is the study of how households and firms make decisions and how these decision makers interact in the market. Macroeconomics is the study of the effects of choices made by individuals, firms and governments on the national economy. It focuses on the aggregate outcome. 2 Supply and Demand _ what is a market? A market is a group of buyers and sellers with the potential to trade with each other. _ what is quantity demanded? The quantity demanded of a good or service is the number of units that all the buyers in a market would choose to buy, given the constraints that they face. _ what is the law of demand? The law of demand states that when the price of a good rises and everything else remains the same (ceteris paribus), the quantity of the good demanded will fall. _ what shifts the demand curve? Income, Prices of substitute goods, Population, Tastes _ what causes movements along the demand curve? Price _ what is quantity supplied? The quantity supplied is the number of units of a good that all sellers in the market choose to sell, given the constraints that they face. _ what is, in general, the relationship between price and quantity supplied? There is a positive relationship between price and quantity supplied. When the price of a good/service rises, the quantity supplied (in general) will rise. However, there is no such thing as the law of supply. _ what causes movements along the supply curve? Price _ what shifts the supply curve? Input Prices, Technology, Number of Firms, Government Taxes, Subsidies and Regulations _ what is the market equilibrium? The equilibrium price is determined by the intersection of the demand and supply curves. It is the price at which the quantity demanded equals the quantity supplied. The equilibrium quantity is the quantity bought and sold at the equilibrium price. 3 Gross Domestic Product _ what is GDP? It is often considered the best measure of how well the economy is doing. It summarizes in a single number
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This note was uploaded on 03/31/2008 for the course ECON 102 taught by Professor Singerman during the Spring '08 term at Iowa State.

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Review for econ exam 1 - Review for Principles of...

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