Chapter 3 Benefits of Trade
Trade- done because everyone benefits. When there is no trading, whats produced = whats
When you start trading, you go out of your consumption possibility frontier. Before trading, CPF
PPF- you have to give up p
Please bring the answer sheet to class on Tuesday. You do not have to provide the test
questions. For short answer, provide as much information as you can. For the essay
questions, provide and show all work. Good Luck!
1. Sarah's accountant t
Aggregate Demand + Supply
The big picture on loanable funds, money supply, price levels, and S&D relate to
Fluctuations are 1) Unpredictable and irregular- correspond to change in business
2) Most macro variables will change over t
Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our
Future and What Americans Can Do About It
Author Peter Peterson really gave me insight on the national debt, social security,
welfare, etc. He explains something that America
Theory of consumer choice- if a consumer buys more of one good, they buy less of
*Budget Constraint- what consumers cant afford due to income.
The slope of BC is the relative price (price of one good in terms of another)
Fiscal policy- gov spending. G will directly impact AD but shift depends on
Multiplier Effect- AD > G. Extra boost in AD because ^ G results in ^incomes and
This is because gov buys from a firm, that is immediate impact
Chapter 4 Supply and Demand
Competitive market- market that cannot be changed by just one buyer/seller
Perfectly competitive market- price is given in a market. Ex. Wheat
Shifts in Demand Curve:
1. Income- more money > more demand for normal goods, less f
2 factors that impact economy over time: in tech- once you progress you never go back to past,
and increase in money supply- ^MS > vInterest>^Investment>^AD so it shifts as well in
long run AD
Shifts in SRAS- anything that affects LRAS + temporary changes
Chapter 14- Perfect Competition
Perfect comp traits: no one seller can change the price, price is given by demand, there
are many buyers and sellers and free exit/entry. When MR is constant (ex P = 8) it is perf.
Total Revenue depends on output (Q
Chapter 16- Monopolistic Competition
Monop comp- a lot of firms, slightly diff products, free entry/exit ex. Restaurants, peanut
They charge price on demand curve
In long run, ATC is tangent on demand curve at the point where MR = MC so there is
Chapter 6- Supply, Demand and Gov. Policies
Controls on prices1. Price ceiling- legal max.
2. Price floor- legal min.
Nonbinding- when there is no effect on market. When floor is below equilibrium and when
ceiling is above equilibrium.
Binding- when floor
Arguments against stabilization
1) Long lag time- Monetary policy: ^ MS > ^Investment > ^AD
Fiscal policy: G or Taxes
Political process takes time. By the time decision is made, economy is different.
2) Automatic Stabilizers in Economy
Tax policy- during
Every market chooses Q where P = MR
Every market has min ATC point intersecting MC
Monopolies and monop comps charge a price that equals demand for profits vs perfect
comps who are given a price (P= MC)
Monop comp and perfect comp have fre
(a) Cost-benefit Principle
Tirggel University charge $500 for each student
no matter how much they eat. According to Costbenefit Principle, if the marginal benefits from
the action exceeds the marginal cost.