Economics 101 Review Sheet Midterm 1

Economics 101 Review Sheet Midterm 1 - Economics Fi rst M...

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Unformatted text preview: Economics Fi rst M idterm Examination Chapter 2 Production Possibilities: Simplified view of economy o 2 types of goods or economic activities o Alternative choices, production possibilities PPF (Production Possibility Frontier) Alternative combinations of goods that can be produced by the economy with given technology and fixed resources o Cannot produce more of one good without producing less of another Movement along the PPF shows tradeoffs in production goods are transformed by diverting resources from one use to another The PPF shifts when other things change o Technology advances o Increase in resources The outside curve is better because the production set is larger and there are more production possibilities PPF Use of PPF in economic analysis o Framework to view opportunity cost value of the next best good or service foregone o Opportunity Cost/Slope= Y/ X, reduction in Good Y for another unit of Good X o The opportunity cost of producing Good X increases when more of Good X is produced Opportunity Cost Opportunity cost- cost including value of next best alternative o Best for society minimizes the costs Energy security o Benefit- no foreign oil consumption o Cost- environmental risk No domestic drilling o Benefit- no environmental risk o Cost- foreign oil consumption Chapter 3 Demand and Supply Goal- construct a basic and powerful model that explains the determination of price and quantity purchased and produced Model of demand and supply o Demand, supply, market equilibrium Demand Curve Demand- the amount of a good people are willing and able to purchase Quantity demanded- the amount of a good people are willing and able to purchase at a given price, holding all other factors constant Demand curve- relationship between the quantity demanded of a good and the price of the good, holding all other factors constant When price increases the quantity demanded falls- law of demand Shifting in the Demand Curve I ncrease/decrease in demand refer to shifts of demand curve I ncrease in demand o Rightward shift of demand curve o Desire of consumer to purchase more of a good at ever price Some other factor changes Decrease in demand o Leftward shift of demand curve o Desire of consumer to purchase less of a good at every price Demand depends on the following factors other than price Change in these factors shift the demand curve o Consumer preferences Tastes change good more desirable o Consumers income Normal good; X/ income >0 (luxury-expensive cars) Inferior good; X/ Income <0 (necessities-fast food) Income decreases demand more of good o Prices of closely related goods Substitutes- goods that have similar uses Complements- goods that are consumed together Pr ice complement good decrease use together o Number of consumers More consumers in a market demand more of a good Demand Curve A change in the price of a good leads to movement along the...
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This note was uploaded on 02/16/2011 for the course ECONOMICS 101 taught by Professor Gerson during the Winter '11 term at University of Michigan.

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Economics 101 Review Sheet Midterm 1 - Economics Fi rst M...

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