Becon Midterm Study Guide

Becon Midterm Study Guide - Becon Midterm Review! Ch. 1...

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Becon Midterm Review! Opportunity Cost: the opportunity cost of an activity is the value of what must be forgone in order to undertake the activity OC x = loss in y/ gain in x Comparative Advantage: everyone does best when each person (or country) concentrates on the activities for which his or her opportunity cost is lowest A person has a comparative advantage over another if his/her opportunity cost of performing a task is lower than the other person’s opportunity cost Absolute Advantage: One person has an absolute advantage over another if he/she takes fewer hours to perform a task than the other person Ch.3 Substitution Effect: the change in the quantity demanded of a good that results when buyers switch to or from substitutes when the price of a good changes Income Effect: the change in quantity demanded of a good that results due to a change in the price of a good which changes the buyer’s purchasing power a consumer simply cannot afford to buy as many slices of pizza at higher prices as at lower Cost-Benefit Principle: a person will buy a good if the benefits he expects to receive exceeds its costs Efficiency Principle: when the economic pie grows larger, everyone can have a larger slice Equilibrium Principle (No Cash on the Table): a market in equilibrium leaves no unexploited opportunities for individuals but may not exploit all gains achievable through collective action Demand Shifts: 1. Income 2. Tastes 3. Expectations 4. # of Consumers 5. Price of compliments and substitutes Normal Goods: As income inc., demand inc. Ferrari The income elasticity is positive Inferior Goods: As income inc, demand dec. Ramen Noodles The income elasticity is negative Supply Shifts: 1. Cost of Raw Materials 2. Technology 3. Expectations 4. # of Producers
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Ch. 4 Elasticity: the measure of the responsiveness of the quantity demanded of that good to changes in its price P/Q * 1/slope Elastic: absolute value of its price elasticity > 1 Inelastic: absolute value of its price elasticity < 1 Unit Elastic: absolute value of its price elasticity = 1 Determinants of Price Elasticity: Substitution Possibilities: demand will tend to be more elastic with respect to price for products for which close substitutes are readily available Budget Sharing: the larger a share of your budget an item accounts for, the greater the incentive to look for substitutes when the price of the item rises therefore big ticket items have higher price elasticities of demand Time: price elasticity of demand for any good will be higher in the long run than
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This note was uploaded on 02/09/2012 for the course BUS 201 taught by Professor Tomsmith during the Spring '10 term at Emory.

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Becon Midterm Study Guide - Becon Midterm Review! Ch. 1...

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