ECon Review Sheet

ECon Review Sheet - Chapters 1 and 2 What is ECONOMICS: The...

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Chapters 1 and 2 What is ECONOMICS: The management of society’s scarce resources Positive vs. Normative Statements: 1. Positive- “claims that attempt to describe the world as it is. “minimum wage law causes unemployment” 2. Normative- “claims that attempt to prescribe how the world should be. “The government should raise the minimum wage Equilibrium: market price has reach the level at which quantity supplied equals quantity demand 1. Surplus: Quantity supplied is greater than quantity demanded 2. Shortage: Quantity demanded is greater than quantity supplied Ceteris Paribus- all else equal Chapter 3 Opportunity Cost- whatever must be given up to obtain some item PPF Curve- a graph that shows all the possible outputs reachable given a country’s resources -the slope of the ppf curve is opportunity cost curve Comparative Advantage- the ability to produce a good at a lower opportunity cost than another producer -to find opportunity cost find what must be given up in order to produce one more item. Whoever has the lower opportunity cost has the comparative advantage. Each country should specialize in one object to increase output and trade. Chapters 4, 6, and 7 Law of Demand- all things equal, as the price of a good rises, the quantity demanded of the good fall. Changes in quantity demand are caused by price changes. Shift in the demand curve are caused by: a. Increase in income shifts demand to the right b. The price of compliments decrease shifts demand to the right c. The price of a substitute increases shifts demand to the right d. Expectations to make more money in the future shifts demand to the right e. # of buyers increases shifts demand to the right Market Demand versus Individual Demand: is the sum of all the individual demands for a particular good or service. Law of Supply: The claim that all other things equal the quantity supplied of a good rises when the price of the good rises. Changes in quantity supplied are caused by changes in price. Shifts in the supply curve are caused by: a. If input prices decreases supply shifts to the right b. If technology improves supply shifts to the right c. Expectation- If prices are expected to rise in short term decreases supply and in the long term increases supply d. The number of sellers increases supply increases Consumer Surplus: the amount that buyers are willing to pay for a good minus the amount they actually pay for it, measures the benefit that buyers receive from a good as the buyer perceives it - As price decreases, quantity demanded increases and consumer surplus increases
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Producer Surplus: amount a seller is paid minus the cost of production measures the benefits seller receives from participating in market Chapters 5, 8 and pp. 128-131 Elasticity: a. elastic- the quantity moves proportionately more than the price b. inelastic- the quantity moves proportionately less than the price c. unit elastic- the quantity moves proportionately the same amount proportionately as the price
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This note was uploaded on 12/01/2010 for the course ECON 305 taught by Professor Terrell during the Spring '08 term at Maryland.

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ECon Review Sheet - Chapters 1 and 2 What is ECONOMICS: The...

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