Micro Economics

1. Production Functions: what relationship does this equation show

Shows how quickly the output increases as we add resources to the production setting

Production Frontiers: how is a production frontier different from a production function

1. shows max output from given input

2. a graphical representation showing the maximum, efficient combinations of two goods an economy can produce given fixed resources and technology

1. Opportunity Cost: frame an example of a choice as an opportunity cost

1. Frame an example

   1. Whether you decide to go to drexel or not (cost of drexel vs. another university)

1. Definition of a Market, and requirements for a market to exist

1. A place for people to interact with buyers for products

1. Recognize the primary purpose of the Price System

1. Notice the need in items and determine the price & quantity

1. What is exchanged in a product market

1. Goods and services for money

2. The household is the buyer

1. What is exchanged in a factor market

1. The household is the seller Selling time & skills for wage

1. What motivates households engaged in exchange

1. Maximizing utilities

1. What motivates businesses engaged in exchange

1. Maximizing profits

2. To expand and get more people to help

1. What is the difference between labor and entrepreneurship

1. physical and mental effort

2. risk-taking and organizing resources

1. Recognize an example of Capital

1. It is a means of production that first has to be man made

   1. Has to be made before it is a resource (houses, highways, buildings)

1. Properties of a demand curve in the product market: relationship between price and quantity

1. Inverse relationship: price ↑ → quantity demanded ↓

1. Properties of a supply curve in the product market: relationship between price and quantity

1. Direct relationship: price ↑ → quantity supplied ↑

1. Definition of market equilibrium

1. Where quantity demanded equals quantity supplied

1. Recognize an example of a substitute good

1. Either/or choice

2. Ex: different brands etc.

1. Recognize an example of a complementary good

1. Can be purchased together (iphone & iphone charger)

1. How does market equilibrium price and quantity change when Income changes

1. If income goes up both equilibrium price & equilibrium quantity will go up

2. Or both down

3. Or one up, and one down

1. Recognize a description of a price control as a price floor or price ceiling

1. maximum legal price (causes shortages)

2. minimum legal price (causes surpluses)

1. Definition of marginal revenue product (or marginal value product) of labor

1. Additional revenue from hiring one more worker

1. Recognize the equilibrium condition for the labor market

1. Wage = Marginal Revenue Product of Labor

1. Condition of supply and demand that defines a shortage, what solves a shortage

1. Need to get rid of some sellers by lowering the price

2. Quantity demanded > quantity supplied

3. Solved by price rising

1. Condition of supply and demand that defines a surplus, what solves a surplus

1. Quantity supplied > quantity demanded

Solved by price falling

1. Formal definition of price elasticity

1. The percentage change in quantity when price changes by 1%

1. Recognize a numeric value as elastic, inelastic, or unitarily elastic

1. If it’s greater than 1

2. If it’s fractional it’s

3. If it’s equal to 1 it’s

1. Recognize an example of perfectly inelastic demand

1. Life-saving medication (vertical demand curve)

2. You will pay the amount no matter what since life is on the line

1. Recognize definition of an inferior good

demand falls as income rises

1. Relationship between price elasticity and the incidence of taxation

1. will fall most heavily on the side of the market which is most inelastic (buyer vs. seller)

1. Definition of Cross-Price Elasticity

1. % change in quantity when a substitute or quantity price changes by 1% + % change in price

1. Definition of Welfare

1. Overall well-being of society (often consumer + producer surplus

   1. Measured by income, utility, and access to goods

1. Be able to compute consumer surplus for an individual, given necessary information

1. Willingness to pay − price paid

Identify where on a demand curve Total Revenues are highest

1. Where demand is unitary elastic

2. Higher than that, it cannot go by selling more price and having more quantity

1. Identify the relationship between Marginal Revenue and price elasticity along the demand curve

1. Elastic demand → MR > 0
   
   

2. Unit elastic → MR = 0
   
   

3. Inelastic demand → MR < 0