221_midterm

221_midterm - 221 midterm Characteristics of markets: 1....

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221 midterm Characteristics of markets: 1. Have voluntary mutually beneficial exchanges 2. Money-medium for exchange 3. Specialization and division of labor 4. Well defined property/ownership -marginal benefit= benefit that arises from a small increase in activity -Absolute advantage= the ability to produce a good using fewer inputs than another producer -Comparative advantage=ability to produce a good at a lower opportunity cost than another producer =opportunity cost= pete can make 240 beers or 100 pizzas =OCpizza= 240/100= 2.4 beers per pizza =OCbeer=100/240= .42 pizzas per beer =terms of trade= must fall between both parties opportunity costs for both parties to gain DEMAND=consumers - Demand= relationship between P and Qd - Qd= amount that buyers are willing and able to purchase -law of D= more will be demanded at lower prices -aggregate demand= sum of all demands in market -CHANGE IN PRICE= MOVEMENT ALONG DEMAND CURVE -Shift in demand= outward is increase in demand =caused by relevant variable that is not represented on either axis EXs=Income, price of related good, tastes, expectations, # of consumers SUPPLY= producers Supply= how much quantity producers are willing to supply at every price -Qs= amount of good that sellers are willing and able to sell -law of S= more supplied at higher prices, sir -Shift in supply= outward is increase in supply ==caused by relevant variable that is not represented on either axis EXs=input prices, technology, expectations, # of sellers Supply = position of supply curve Quantity Supplied = amount suppliers wish to sell KNOW THIS= a shift in the supply curve is a “change in supply”, same for demand = a movement along supply curve is a “change in the quantity supplied”, same for demand During surplus, producers lower price During shortage, producers raise prices and sell more units Price floor= cant sell below set price Price ceiling, can’t sell above set price
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221_midterm - 221 midterm Characteristics of markets: 1....

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