LSU ECON 2030 Final Study Guide 2026

Economics

the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the societyand the scarcity of resources. It examines the production, distribution, and consumption of goods and services.

what to produce, how to produce it, for whom to produce it

the three central coordination problems any economy must solve

microeconomics

the branch of economics that studies individual agents and choices such as the pricing of firms, decisions on what to buy, and how to allocate market resources among alternative ends

macroeconomics

branch of economics that studies things such as inflation, unemployment, and economic growth

marginal cost

the additional cost over and above costs already incurred

marginal benefit

the additional benefit above what has already been derived

economic reasoning

reasoning based on the premise that everything has a cost

opportunity cost

the benefit one might have gained from choosing the next-best alternative

implicit costs

costs associated with a decision that often are not included in normal accounting costs and ARE included in opportunity costs

sunk costs

costs that show up in financial accounts that are already spent and ARE NOT included in opportunity costs

economic forces

the necessary reactions to scarcity

market force

an economic force that is given relatively free rein by society to work through the market

the invisible hand

the price mechanism that guides our actions in a market and an example of a market force

economic, social, and political forces

what happens in society is a reaction to, and interaction of these

positive economics

the study of what is and how the economy works

normative economics

the study of what the goals of the economy should be

the art of economics

using the knowledge of positive economics to achieve the goals determined in normative economics

economic institutions

laws, common practices, and organizations in a society that affect the economy

economic theories

these tie together economists’ terminology and knowledge about economic institutions

economic model

a framework that places the generalized insights of a theory in a more specific contextual setting

economic principle

a commonly held insight stated as a law or general assumption

Production possibility curve

a curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

productive efficiency

achieving as much output as possible from a given amount of inputs or resources

productive inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

technological or resource increase

what can move a PPC outwards

biased

what kind of technological increase is this

comparative advantage

something a resource has if it is better suited to the production of one good than to the production of another good

specializattion and trade

how countries can increase consumption

the law of one price

a law that states wages of workers in one country will not differ significantly from the wages of equal workers in another instituionally similar country

the law of demand

a law that states that the quantity of a good demanded is inversely related to the goods price

inversely

quantity demanded and price are ______ related

demand

income, prices of other goods, tastes, expectations, and taxes and subsidies all are shift factors of ______

quantity demanded

a specific amount that will be demanded per unit of time at a specific price, other things constant. It refers to a specific point on the demand curve

demand

a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant. it refers to the entire demand curve

the law of supply

law that states the quantity of a good supplied is directly related to the good’s price

directly

quantity supplied and price are _____ related

quantity supplied

a specific amount that will be supplied per unit of time at a specific price, other things constant. It refers to a specific point on the supply curve

supply

a schedule of quantities of a good a seller is willing to sell per unit of time at various prices, other things constant. It refers to the entire supply curve.

equilibrium quantity

the amount bought and sold at quilibrium price

equilibrium price

the price towards which the invisible hand drives the market

excess supply or surplus

if this exists, quantity supplied is greater than the quantity demanded

excess demand or shortage

if this exists quantity demanded is greater than quantity supplied

rise

prices adjust and tend to ____ when there is a shortage or excess demand

fall

prices adjust and tend to ____ when there is a surplus or excess supply

Price elasticity of demand

the percentage change in quantity demanded divided by the percentage change in price

positive

price elasticity of demand is always a _____ number

perfectly elastic

if ED = infinity, demand is ________ because quantity changes infinitely in repsonse to a change in price

elastic

if ED > 1, demand is _____ because the % change in quantity is greater than the change in price

unit elastic

if ED = 1, demand is _____ because the % change in quantity and price are the same

inelastic

if ED < 1, demand is _____ because the % change in quantity is less than the percentage change in price

perfectly inelastic

if ED = 0, demand is ______ because the quantity does not change in response to changes in price

decrease

if ED > 1, increasing price will _____ total revenue

increase

if ED < 1, an increase in price will ______ total revenue

not change

if ED = 1, an increase in price will ______ total revenue

income elasticity of demand

the responsiveness of demand to changes in income

normal good

a good whose consumption increases with an increase in income

necessity

a good whose E_income is between 0 and 1l

luxury

a good whose E_income > 1

inferior

a good whose consumption decreases with an increase in income

cross-price elasticity of demand

a measure of the responsiveness of demand to changes in prices of other related goods

substitutes

goods that can be used in place of others, and whose E_cross-price > 0

complements

goods that are used in conjunction with others, and whose E_cross-price < 0

Price elasticity of supply

the percentage change in quantity supplied divided by the percentage change in price

consumer surplus

what does the blue shaded region represent

producer surplus

what does the red shaded region represent

market equilibrium

at what price is the combination of consumer and producer surplus maximized

elastic

producers bear the burden of taxation more when demand is

inelastic

consumers bear the burden of taxation more when demand is

to maximize profits

the goal of a firm

total cost

the explicit payments to the factors of production plus the opportunity cost of the factors provided by the owners of the firm

total revenue

the amount a firm receives for selling its product or service plus any increase in the value of the assets owned by the firm

false

economists and accountents measure profit the same way

total costs

fixed costs plus variable costs equals

economic profit

total revenue - total costs =

marginal cost

change in total cost divided by the change in quantity

average fixed cost

fixed cost divided by quantity

average variable cost

variable cost divided by quantity

average total cost

average fixed cost + average variable cost

perfectly competitive

a market in which economic forces operate unimpeded is considered to be

buyers and sellers are price takers, no barriers to entry, firms’ products are identical

3 conditions for perfect competition

marginal revenue

the change in total revenue associated with a change in quantity

marginal cost

the change in total cost associated with a change in quantity

decreasing

if marginal revenue is less than marginal cost, a firm can increase profit by _____ output

increasing

if marginal revenue is less than marginal cost, a firm can increase profit by _____ output

Yes

is this firm making profit

No

is this firm making profit

the shutdown point

the point at which below it the firm would be better off to temporarily shut down than stay in business

the profit maximizing level of output

the point at which marginal cost equals price

MC = MR = P

the profit maximizing condition for perfectly competitive firms

average variable costs

firms shut down production if price falls below the minimum of their

monopoly

a market structure in which one firm makes up the entire market

below

marginal revenue is always ____ its price for a monopolistic firm

just look

price discrimination

charging different prices to different individuals based on their elasticity of demand

classical economists

economists who believe that business cycles are temporary glitches, and generally favor laissez-faire, or non-activist policies

kenyesian economists

economists who believe that business cycles reflect underlying problems that can be addressed with activist government policies

business cycle

an upward or downward movement of economic activity that occurs around the growth trend

potential output

the highest amount of output an economy can sustainably produce and sell using existing production processes and resources

the unemployment rate

the percentage of people in the economy who are willing and able to work but cannot find jobs

frictional unemployment

unemployment caused by people entering the job market and people quitting a job juts long enough to look for and find another job