ECON 204 Final

Econ 204 ualberta final. supply and demand, market structures, internation trade.

Economics

Study of choices people make regarding the allocation of scarce resources to satisfy their needs and wants.

Judging economic efficiency

1. efficiency

2. equity

3. moral and political consequences

Correlation Fallacy

incorrect belief that correlation means causation

Post Hoc Fallacy

error of reasoning that a first event causes a second because if occurred first

Fallacy of Composition

what is true for the individual is not true for the group

Opportunity Cost

benefit given up by not using the resources in the next best alternative way

Law of Increasing Costs

in order to produce extra amounts of one good, society must give up ever increasing amounts of the other

Rationality Assumption

the assumption that individuals make decisions aimed at leaving themselves better off

Three Players in the Market

1. Households

2. Firms

3. Government

Circular Flow Diagram

Law of Demand

As the price of a good decreases, the quantity demanded increases, and vice versa.

Law of Supply

As the price of a good increases, the quantity supplied increases, and vice versa.

Equilibrium

quantity demanded equals quantity supplied

Price Floor

Government set min price. High price floor causes surplus

Price Ceiling

government sets max price. Low price ceiling causes shortage.

Quota

government sets maximum quantity (reduces supply)

Elasticity

measures responsiveness of quantity demanded to a change in price

Law of Diminishing Marginal Returns

as each new unit of the increasing input is added, the marginal output gets smaller. (less efficient)