Introduction to Economics
What is Economics?
Your definition? Friedman's definition:
Economics is the science [.] of how a particular society solves its economic problems. An economic problem exists whenever scarce means are used to sati
Chapter 8 03/12/08 - Dead weight loss The fall in total surplus that results from a market distortion, such as a tax. Equal to the TS without tax minus the TS with tax. What determines the size of the DWL Which goods or services should government t
Chapter 14 - Characteristics of perfect competition o Many buyers and sellers o The goods offered for sale are largely the same o Firms can freely enter or exit the market. o Because there are many buyers and sellers along with the goods being offere
Chapter 11 Important characteristics of goods - A good is excludable if a person can be prevented from using it. Excludable: fish tacos, dial-up internet Not excludable: National defense - A good is rival in consumption of one persons use of it dim
Chapter 13 Cost of production - Total Revenue, Total Cost, Profit We assume that the firm's goal is to maximize profit. Profit = Total Revenue (Amount a firm receives from the sale of its output) Total Cost (the market value of the inputs a firm u
Chapter 4 2/25/08 - Law of supply and demand The claim that the price of any good adjusts to bring the quantity supplied and quantity demanded for that good into balance. Three steps to analyzing changes in Equilibrium Decide whether even shifts su
Chapter 5 03/03/07 - Price elasticity of demand Measures how much the quantity demanded responds to a change in P. The price elasticity of demand is closely related to the slope of the demand curve. The flatter the curve, the larger the elasticity
Chapter 6 03/05/07 Government policies that alter the private market outcome - Price controls Price ceiling: A legal maximum on the price of a good or service. (Ex. Rent) Price floor: A legal minimum on the price of a good or service. (Ex. Minimum
Chapter 2 (2/13/08) The economist as scientist - Economists play two roles: Scientists: try to explain the world. Policy advisors: try to improve it. - In the first, economists employ the scientific method. Testing theories in the world and seeing
Chapter 7 03/10/08 Welfare Economics - Allocation of resources How much of each good is produced Which producers produce it Which consumers consume it - Welfare economics Studies how the allocation of resources affects economic well being. - Will
Chapter 1 (2/11/08)
Principle #5: Trade can make everyone better off.
- Rather than being self-sufficient, people can specialize in producing one good or
service and exchange it for other goods.
- Countries also benefit from trade and specialization
Chapter 10 - The Coase theorem - If private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own and allocate the resources efficiently.
What is the total GDP of the USA?
$13.06 trillion 2. $51.27 billion 3. 643.85 billion 4. $1.79 trillion
What is the per capita GDP of the USA?
$43,800 2. $102,400 3. $12,500 4. $74,300
How high is the unemployment rate in the USA?
3.2% 2. 7.4
Supply and Demand: Practice
Market for Peanuts
1. Draw the market equilibrium for peanuts and label the equilibrium point A. 2. Assume peanuts are an inferior good. Illustrate in the above graph what would happen to the market for peanuts
Economic Activities: Producing and Trading
D E F
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30`000 40`000 50`000
Computers (thousands per year)
Supply and Demand
Demand: A definition
The willingness and ability of buyers: to purchase different quantities of a good at different prices during a specific time period.
Law of Demand
As the price of a good rises, the quantity demand
Chapter 3 2/18/08 Trade benefits everyone - Absolute advantage The ability to produce a good using fewer inputs (hours) than another producer. The US can produce wheat in 10 hours compared to Japan's 20 hours. Measures the cost of a good in terms