microeconomics exam 1

Elastic

Sensitive to change in price, if price goes up then demand will go down, luxuries, E>1

Inelastic

Not sensitive to change, if price goes up quantity of demand stays the same, necessities, E<1

Unit elasticity

Where you maximize your profit

Price elasticity of demand

(Q1-Q2)/[(Q2+Q1)/2] divided by (P1-P2)/[(P2+P1)/2]

Law of demand

When price decreases, quantity demand increases

Law of supply and demand

When supply goes up demand goes down, when supply goes down demand goes up

Opportunity cost

Give up something good in exchange for another good thing

Factors of production

Land, labor, capital, and entrepreneurship

Scarcity

having seemingly unlimited human wants and needs, but limited resources

How do we determine the standard of living?

Per capita GDP

GDP

Consumption + investment spending + government spending + net exports

Production possibilities frontier

If you produce more output, opportunity cost could be higher

Absolute advantage

Ability to produce a good using fewer inputs than another producer

Comparative advantage

Ability to produce a good at a lower opportunity cost than another producer