macro econ 1100 final

Microeconomics

the branch of Econ that deals with the functioning of households and businesses

difference between macro and micro

macro is large, micro is small

macroeconomics

the branch of econ that looks at the behavior of aggregates (total/sum) on a national scale

(big 3: unemployment, inflation, GPD)

Economics

the study of how society manages its scarce resources

positive economics

scientific predictions about econ relationship and addresses what is fact

normative economics

involves value judgment and address what should be.

opportunity cost

value of the next best alternative given up for the alternative sacrifice that was chosen

Scarcity

not available in amounts sufficient to satisfy all desired use for so said resource.

what outputs to produce

how to produce outputs

who gets to use the outputs

Ceteris Paribus Assumption

other variables that influence the relationship between the variables under consideration are held constant to isolate the relationship between those two variables

PPF (Production Possibilities Frontier)

a graph that shows the max combos of 2 goods that can be produced in a given time or period assuming...

1. a full and efficient usuals of available resources

2. using the current or existing state of technology

PPF (Production Possibilities Frontier)

efficiency: when the greatest amount of outputs is being produced from a given amount of inputs (on the line, ppf curve)

inefficiency: when not all inputs and resources are being used to their full potential (inside the ppf curve)

unattainable: outputs that are unable to be produced because of current resources and current technology (out side of the curve)

economic growth

an increase in the total output of an economy illustrated by a rightward shift in the ppf.

absolute (specialized) advantage

the ability to produce more of a good using a given quantity of resources

comparative advantage

the ability to produce a good at a lower opportunity cost compared to other producers (who gives up less?)

Law of Demand

there is a negative or inverse relationship between the price of a good and the quantity demanded of that good, ceteris paribus

(move opposite, demand and price)

Law of Supply

states there is a positive or direct relationship between the price of a good and the quantity supplied of that good, ceteris paribus

(move together, supply and price)

Movement on supply curve

change in the price of a good itself

(change in quantity supply)

Shift on supply curve

a change in any non price determinate of supply; technology, resources cost, acts of nature, number of sellers, producer expectations.

(change in supply)

Movement on demand curve

caused by a change in price of the good itself

(change in quantity demanded)

Shift on demand curve

caused by change on any non price determinate of demand; taste and preferences, consumer income (normal good + and inferior good-) , prices of related goods (substitutes and complement), number of buyers, consumer expectations

(change in demand)

Equilibrium

occurs at the point (the price) where the demand curve and the supply curve intersect (qty. demanded is = to qty. supplied)

Shortages

price is below the equilibrium price as a result qty. demanded is greater than qty. supplied

P < PE =>QD > QS

Surpluses

price is above the equilibrium price and as a result qty. supplied us greater than qty. demanded

P > PE=> QS > QD

income elasticity of demand

measures the responsiveness in the demand for a good due to some percentage change in income

positive = normal good

negative = inferior good

cross elasticity of demand

measures the responsiveness in the demand for a good due to some percentage change in the price of a related good

positive = substitutes

negative = complements

elastic...

elastic greater than 1 (price up, total revenue up; inverse) read negative related => positive related

unit elastic equal to 1 (no change in TR)

inelastic less than 1 (TR goes up, TR goes down) read negative related => positive related

perfectly inelastic

quantity does not respond at all to changes in price (E=0) vertical

perfectly elastic

In this special case, the demand curve is horizontal, meaning consumers have an instantaneous and infinite response to a change in price

elastic

refers to a market for a product or service that is price sensitive; that is, relatively small changes in price will generate fairly large changes in the quantity demanded (flatter)

inelastic

Describes demand that is not very sensitive to a change in price (steeper)

Determinate of elasticity

availability of substitutes, percentage of income, necessity, time, brand loyalty

excise tax (sin tax)

a tax on items considered undesirable or harmful, such as alcohol or tobacco.

Consumer Surplus (CS)

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

Producer Surplus (PS)

the amount a seller is paid for a good minus the seller's cost

Law of Dininishing Marginal Product

MC increases as outputs increase

MC + PS = LDMP

Deadweight Loss (DWL)

the fall in total surplus that results from a market distortion, such as a tax

1/2 x b x h

economic burden of a tax and elasticity

?

examples and solutions for positive and negative externalities

positive externalities: vaccines, education (underproduced)

negative externalities: pollution, second hand smoke (overproduced)

Externalities are

side effects passed on to a party other than the buyers and sellers in the market (3rd party effect)

public goods

Goods that are neither excludable nor rival in consumption

Non-rival

when someone else's use doesn't diminish the usability of a good

Non-excludable

good for which the supplier cannot prevent non-payers from obtaining benefits

free rider problem

The problem faced by unions and other groups when people do not join because they can benefit from the group's activities without officially joining. The bigger the group, the more serious the problem.

Functions of Government

????

keep order, provide security, provide services, guide the community

short run

the period of time during which at least one of a firm's inputs is fixed

long run

the period of time in which a firm can vary all its inputs, adopt new technology, and increase or decrease the size of its physical plant

AFC

FC/Q

AVC

VC/Q

ATC

TC/Q or AFC+AVC

TFC

TFC = TC - TVC

TVC

TVC = TC - TFC

TC

TVC+TFC

MC

change in TC/change in Q

MR

change in TR/change in Q

economic profit

TR-TC

TR

P x Q

characteristics of perfect competition

-Many small independent producers and consumers

-Firms produce a standardized product

-No barriers to entry/exit

-Firms are "price takers"

short run equilibrium

a situation where the AD and AS curves intersect at a level of real GDP that is above or below potential

Long Run Equilibrium in Perfect Competition

-P=MC-Minimizes ATC

-Accounting profit may be positive

-Economic profit is zero

shaped as a a u ish

Price and profit maximizing output for a perfectly competitive firm

MR=MC

Economic profit = TR-TC

TC= ATC x Q

Short-run Shutdown Price

The price that covers average variable costs. It occurs just below the intersection of the marginal cost curve and the average variable cost curve.

Pure Monopoly Characteristics

single seller, no close substitutes, price maker, blocked entry

Industry Demand

-growing demand moderates competition and lessens rivalry

-declining demand encourages rivalry for share and revenue

firm demand

That portion of the Demand that a power supplier is obligated to provide except when system reliability is threatened or during emergency conditions.

Barriers to entry in a monopoly

patents/copyright, government regulation, ownership of scare's resources, economics of scale

monopoly shut down rule

P > AVC continue to operate

P < AVC shutdown

monopoly government intervention

antitrust, regulations, etc.

Characteristics of monopolistic competition

many sellers, product differentiation, free entry and exit

Characteristics of Oligopoly

1. few, mutually interdependent firms

2. high barriers to entry

3. highly concentrated industry

examples: cartel, price leadership, game theory

Monopoly Competition shut down rule

P > AVC continue

P < AVC stop

MB > MC means

the last unit of the control variable increased benefits more than it increased costs. (inefficiency)

Cartel

a formal organization of producers that agree to coordinate prices and production

price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

game theroy

Analyzes the choices made by rivals firms, people and even governments when they are trying to maximize their own well-being while anticipating and reacting to the actions of others in their environment.

MP

change in Q/change in L

VMP = the wage rate.

MP x P

the revenue that is earned from hiring one more labor

good luck

group me if u have something to add.