Economics midterm

Zero sum game, non zero sum game

Zero sum: One person’s gain another person’s loss, non zero: both gain or both lose

Non competitive market structures (labor market)

Monopoly, monopsony, monopolistic and oliogopoly

Positive theories

“What is” (cause and effect)

Negative theories

what should happen. Because you got a result it doesn’t automatically make is universally true

private goods

Clothes, car, phone they are excludable and rivalrous

common goods

timber, non-drinkable water, coal, they are non excludable and rivalrous

Club Goods

Movie theatre, netflix subscription, private beach they are excludable and non rivalrous

Public goods

parks, highway, security, they are non excludable and non rivalrous

laws and prices create…

incentives

who keeps markets fair, safe and trustworthy?

The FTC (fair trade commission), US department of justice, FDA (food and drug administration), and SEC (US Security of exchange commission

Theory

An explanation of why things happen

how to find area of a rectangle and triangle?

Rectangle: bxh and triangle: ½ bxh

how do you find slope?

price x over price y (px/py) which gives you -rise over run

what if you are trying to find the slope of 2 quantities in the x and in the y?

You find change in y and change in x, so y2-y1 over x2-x1

what is 20 out of 80?

2/80= 0.25 × 100 =25%

what does CPIt and CPIt-1 stand for?

inflation rate, to find it subtract this years from last years where CPIt-1 is last years

Whats lower bound?

$0 u cant go past 0

Whats upper bound

infinity, as much as you can get buyers to purchase the item

Budget Line

Max amount of money willing to spend

Static model

One moment in time ignore the future, these are also where you spend up to the budget line, if you spend less you are being inefficient

Inferior goods

ramen noodles (things that if you had more money you probably wouldn’t buy)

In economics cheaply means

Lower opportunity cost

Market clears

no shortage or surplus, at equilibrium

PPF

Max combination fo 2 goods that an economy can produce when utilizing all its resources effectively

Does PPF create limitations for a country?

Yes, limited resources

Why is PPF downward sloping?

Trade offs with limited resources

What does a PPF shift mean?

If it shifts to the right we can produce more

When would PPF be a straight line?

When Opportunity cost is constant

How do you find opportunity cost/comparative advantage?

Potatoes=400 meant/900 potatoes= 4/9 which means they have to give up 4/9 meat for one potato

relationship between p and q

in demand P and Q are opposites and in supply they are the same (if one increases the other does too)

If y>0 the products are…and if y<0 products are…

Y>0 products are substitutes and if we get y<0 products are compliments

if S>0 then… if S<0 then…

S>0 means normal good, S<0 means inferior goods

Normal good

if incomes increase people will usually buy more of these

Price of Loans

interest rates

Price of land market

price per sq foot

Demand shifters

income of consumers increase (if price is normal), price of substitute increases, price of compliment decreases, # of consumers increases, or future expectations

Supply shifters

Inputs/factors of production decrease, better technology, more suppliers, future expectations

Ceteris Paribus

All things remain constant

First fundamental theorem of welfare economics

Do prices from cognitive markets generate allocations that are pareto efficient: YES

Second fundamental theorem of welfare economics

Can all pareto efficient allocations be supported by competitive market prices: NO

Distortions

Price controls or unit taxes

Price ceiling

The max price sellers are allowed to charge

Price floors

The minimum price sellers are allowed to charge

Binding ceiling

Price ceiling is under equilibrium or in the case of a price floor it is above equilibrium

Constrained optimization

finding the best choice

Pareto efficient

You cant make anyone better off without making someone else worse off

Pareto inefficient

It’s possible to make someone better off without hurting anyone else

Dynamic model

Opposite of a static model, shows how things change over time

Choke price

the highest price a consumer is willing to pay for a good before they completely stop buying it.

How to find to Slope of the Demand Curve

Q2-Q1 over P2-P1

Draw a Market Demand Function

Use the graph (add the people producing’s numbers) and the price and plot the points on the graph

Verification of equilibrium  

Once you find equilibrium by setting both equations equal to each other, verify by plugging in what you go for both Qs and Qd equations and make sure that you get the same number in both equations

Properties of equilibrium

Existence: Demand=supply, Uniqueness: If there is only one price where demand equals supply (common), and stability: Equilibrium is stable when price adjusts back if it’s too low or too high so shortage, price rises and surplus, price lowers

Invisible hand of market

People acting in their own interest unintentionally help society, like baker wants to earn money, bakes bread, people get food

Market price

If a laptop sells for $800 in stores, its market value = $800.

Input market

Land, labor and capital