Econ 510 Exam 1 Study Guide

Intermed Micro Exam 1 Chapter 1 (Powerpoint Slides) economicals- Unlimited wants and limited resources Micro economic science- emergence of economics that deals with the behavior of individual economic units. Units such(prenominal)(prenominal) as, consumers, firms, workers, and investors, as well as the marts that these units comprise. Macroeconomics- Branch of economics that deals with gather economic vari adapteds. such as the level and growth identify of national end product, interest rates, unemployment, and splashiness. Micro Economics is a story of trade-offs that consumers, workers & firms aspect and shows how these trade-offs are best made.Key Players Consumers, Workers, Firms sight offs for Consumers trammel Incomes To save or to spend. If save so for HOW LONG and of- scat HOW MUCH If spend consequently on WHAT and HOW MUCH This gives birth to the CONSUMER THEORY, which negotiation about the preferences, choices, utility etc. Trade offs for Workers Time Leisure Vs. Labor Whether and when to discharge the work force. Pay crustal plate is dependent on breeding election of employment Risky but extravagantly paying VS safe but less(prenominal) m iodiney Trade offs for Firms What to levy? How much to produce? cause Any companionship in the world would love to produce everything and reap profits but shtupt do it.Central planned economy- worths are set by the govt In a securities industry economy- Prices are placed by the interactions of consumers, workers, and firms. These interactions occur in martscollections of buyers and sellers that in concert determine the terms of a smashing. In economics, EXPLANATION and PREDICTION are establish on theories and models. Theories- are developed to cond wizard observed phenomena in terms of a set of basic rules and assumptions. Model is a mathematical representation, based on economic theory, of a firm, a food foodstuff, and some opposite entity.Positive abstract describing rel ationships of cause and effect. Normative Analysis Analysis examining questions of what ought to be. Competitive mart market with MANY buyers and sellers trading identical products so that each buyer and seller is a toll taker. Non-Competitive commercialise Seller or buyer stool influence the tolls Market Boundary GEOGRAPHICAL and RANGE of products why is boundary important? To get to cut about actual and potential competitors and its laborsaving in making usual plicies. Example Pain Killers REAL Vs. noun phrase chargesNominal legal injury Absolute value of a worthy, maladjusted for inflation Real Price Price of a well(p) relative to an blend measure of charges scathe ADJUSTED for inflation Consumer Price advocator Measure of the aggregate outlay level. Producer Price Index Measure of the aggregate toll level for INTERMEDIATE products and WHOLESALE goods. REAL vs. NOMINAL pricing The original legal injury of nut in 1970 dollars is mensural as follo ws The real hurt of testis in 1970 dollars is calculated as follows The real value of testiss in 1990 dollars is calculated as follows Public Policy * Great impact on Economics * Can adjustment course of the marketChapter 2 (Powerpoint Slides) sum up deform affinity between the bar of a good that producers are forgeting to sell and the outlay of the good The sum up edit is upwardly slopping The laster(prenominal)(prenominal) the wrong, the more(prenominal) firms are able and willing to produce and sell. If production be fall, firms can produce the same step at a lower price of a blown-upr meter at the same price. The supply abbreviate then stirs to the right on. enclose represent by authorize The lend Curve is olibanum a relationship between the measuring rod supplied and the price. We can write this relation as an equivalence QS = QS(P) different Variable That Affect Supply areProduction be, including wages, interest charges, and the costs of ra w materials. When production costs decrease, output increases no outlet what the market price happens to be. The entire supply turn out thus shifts to the right. mixed bag in supply or Shifts in the supply warp Vs Change in the meter supplied or Movements on the supply curve. The require Curve blood between the quantity of a good that consumers are willing to buy and the price of the good. Equation can be pen QD = QD(P) recruit Graph by give way A high subscribe curve shifts the contract curve to the right. Downward Sloping) devious the occupy Curve If the market price were held unbroken at P1, we would expect to peck an increase in the quantity accepted articulate from Q1 to Q2, as a result of consumers higher incomes. Because this increase would occur no matter what the market price, the result would be a shift to the right of the entire demand curve. cut in Graph by pile Shifting the contract Curve Substitutes deuce goods for which an increase in the pric e of one run fors to an increase in the quantity demanded of the other. Complements two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.THE trade MECHANISM The market clears at price P0 and quantity Q0. At the higher price P1, a surplus develops, so price falls. At the lower price P2, there is a before longage, so price is bid up. Insert Graph by authorise Equilibrium (aka market clearing) price Price that equates the quantity supplied to the quantity demanded. Market Mechanism- Tendency in a bare(a) market for price to change until the market clears. Surplus Situation in which the quantity supplied exceeds the quantity demanded. Shortage Situation in which the quantity demanded exceeds the quantity supplied. CHANGES IN MARKET EQUILIBRIUM invigorated Equilibrium following Shift in Supply When the supply curve shifts to the right, the market clears at a lower price P3 and a larger quantity Q3. Insert Graph by perish current Equilibrium following Shift in pack When the demand curve shifts to the right, the market clears at a higher price P3 and a larger quantity Q3. Insert Graph by hand innovative Equilibrium following Shifts in Supply and Demand Supply and demand curves shift over time as market conditions change. In this example, rightward shifts of the supply and demand curves lead to a slightly higher price and a much larger quantity.In general, changes in price and quantity depend on the amount by which each curve shifts and the shape of each curve. Insert Graph by hand From 1970 to 2007, the real (constant-dollar) price of eggs drop down by 49 percent, while the real price of a college education rose by one hundred five percent. What are the possible reasons for such a sharp change The mechanization of fowl farms sharply reduced the cost of producing eggs coupled with sharp decline in demand for eggs shifted by health-conscious people who tended to avoid eggs.As for college, incre ases in the costs of fit and maintaining modern classrooms, laboratories, and libraries, along with increases in efficacy salaries, pushed the supply curve up. Demand for college increase as a larger character of a growing upshot of high school graduates decided that a college education was essential & paying. Market for orchis The supply curve for eggs shifted descending(prenominal) as production costs fell the demand curve shifted to the left as consumer preferences changed. As a result, the real price of eggs fell sharply and egg consumption rose. Insert Graph by hand Market for College EducationThe supply curve for a college education shifted up as the costs of equipment, maintenance, and staffing rose. The demand curve shifted to the right as a growing number of high school graduates desired a college education. As a result, both price and enrollments rose sharply. Insert Graph by hand Supply and Demand for New York City Office Space future(a) 9/11 the supply curve sh ifted to the left, but the demand curve also shifted to the left, so that the average rental price fell. Insert Graph by hand breeze piece change in one variable resulting from a 1% increase in another.Price Elasticity of Demand Percentage change in quantity demanded of a good resulting from a 1% increase in its price. Linear Demand Curve Demand curve that is a STRAIGHT LINE. Linear Demand Curve The price breeze of demand depends not plainly on the slope of the demand curve but also on the price and quantity. The elasticity, therefore, varies along the curve as price and quantity change. Slope is constant for this linear demand curve. Near the top, because price is high and quantity is small, the elasticity is large in magnitude. The elasticity becomes smaller as we move down the curve.Insert Graph by hand Infinitely Elastic Demand Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit. a. ) For a horizontal demand curve, ? Q/? P is infinite. Because a tiny change in price leads to an enormous change in demand, the elasticity of demand is infinite. Insert Graph by hand Completely Inelastic Demand Principle that consumers will buy a fixed quantity of a good regardless of its price. b. For a vertical demand curve, ? Q/? P is zero. Because the quantity demanded is the same no matter what the price, the elasticity of demand is zero. Insert Graph by hand Other Demand Elasticities Income Elasticity of Demand Percentage change in the quantity demanded resulting from a 1% increase in income. Cross-Price Elasticity of Demand Percentage change in the quantity demanded of one good resulting from a 1% increase in the price of another. Elasticities of Supply Price Elasticity of Supply Percentage change in quantity supplied resulting from a 1% increase in price.SHORT-RUN vs LONG-RUN ELASTICITIES D emand Gasoline short(p)-term and Long-Run Demand Curves a. ) In the short run, an increase in price has only a small effect on the quantity of gasoline demanded. Motorists may suffer less, but they will not change the kinds of cars they are driving overnight. In the continuing run, however, because they will shift to smaller and more fuel-efficient cars, the effect of the price increase will be larger. Demand, therefore, is more elastic in the long run than in the short run. Insert Graph by hand