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Econ Midterm Review
Review
57
Economics
Undergraduate 1
10/31/2010

Additional Economics Flashcards

 


 

Cards

Term

 

 

Microeconomics

Definition
unit of analysis is the individual or firm. Looking at one person's behavior, one firm's choice, do you have a price
Term

 

 

Macroeconmics

Definition
Considers economy wide aggregates. Looks at overall unemployment, level of output for economy, price levels
Term

 

 

Desirable Characteristics of Economic Models

Definition

1. Simple-easy to understand

2. General-applies to a number of situtations

3. Useful-accurately predict observed behavior

Term

 

 

Positive Statements

Definition
statements of facts, of what is, or what would occur if something else were to happen
Term

 

 

Normative Statements

Definition
Expresses value judgments. They state what should be.  "Should or Ought"
Term

 

 

Fallacy of Composition

Definition
This occurs when someone says what is true for one person must be true for everyone.
Term

 

 

Post-hoc Fallacy

Definition
This occurs when someone says that since event A occurred before event B, it must be the case that A caused B.
Term

 

 

Other Conditions Fallacy

Definition
This occurs when someone says that since two events occurred together in the past, will continue to occur together in the future
Term

 

 

Misleading Comparison

Definition
Sometimes people make comparison in a way that does not relfect their true differences. Most of the time, this mistake occurs due to an omission of inflactionary adjustments in an arguement
Term

 

 

Selection Bias

Definition
This occurs when people use data that is not typical, but instead is selected in a way that biases the results
Term

 

 

Opportunity Cost

Definition
The highest valued forgone alternative
Term

 

 

Total Value

Definition
How much it is worth to consume a certain quanity of goods. Total use value is always increasing, but at a decreasing rate
Term

 

 

Marginal Value

Definition
The change in total value for ecah additional unit of consumption
Term

 

 

Principal of Diminishing Marginal Value

Definition
As the rate of consumption increases, the marginal use value falls
Term

 

 

Decision Rule

 

Definition
People choose to consume at a rate such that the marginal use value is jsut equal to the market price
Term

 

 

Ceteris Paribus

Definition
Other things being equal
Term

 

 

1rst Law of Demand

Definition
Holding other relevant factors constant, the lower the price of a good, the greater will be the quanity demanded of that good
Term

 

 

An increase in demand....

Definition
causes an increase in quanity demanded
Term

 

 

A decrease in demand...

Definition
causes a decrease in quanity demanded
Term

 

 

Substitutes

Definition

Goods X and Y are substitutes if when the price of good X changes, the demand for good Y changes in the same direction

Ex. If the price of Bud Light rises so does the demand for Miller Lite

Term

 

 

Compliments

Definition

Goods X and Y are called compliments if when the price of good X changes, the demand for good Y changes in the opposite direction

 

Ex. If the price of eggs rises, that means there will be a decrease in the demand for bacon

Term

 

 

Normal Goods

Definition

Good X is called normal good if when incomes change, the demand for good X changes in the same direction

If income rises, the demand for good X rises. If incomes falls the demand for good X falls

Term

 

 

Inferior Goods

Definition
Good X is inferior if when income changes, demand for good X changes in the opposite direction
Term

 

 

Principle of Rising Marginal Costs

Definition
The higher the rate of production, the higher cost of producing an additional of output
Term

 

 

Marginal Cost

Definition
The additional cost associated with producing one additional unit of output
Term

 

 

1rst Law of Supply

Definition
Holding other relevant constant, the higher the price of a good, the greater will be the quanity supplied
Term

 

 

An increase in supply...

Definition
there will be a higher quanity supplied
Term

 

 

A decrease in supply...

Definition
there will be a lower quanity supplied
Term

 

 

An increase in input prices...

Definition

causes an increase in marginal costs of producing each unit

And also causes a decrease in supply

Term

 

 

A decrease in imputr prices...

Definition
causes in decrease in MC and a increase in supply
Term

 

 

Market

Definition
Process or location in which equilibrium is established and the otherwise inconsistent aspirations of demanders and suppliers are recommended
Term

 

 

Equilibrium

Definition
An outcome or state that will tend to persist unless distrubed by a change in one or more of the ceteris paribus conditions. It is also the state in which the aspirations of suppliers are consistent with each other and state of the world
Term

 

 

Consumer Surplus

Definition

Total value-total expeditures

=What consumers are willing to pay-what they had to pay

=TV-P*Q

Term

 

 

Producer Surplus

Definition

Total Revenue-Total Cost

=What suppliers are paid-what they had to be paid to supply the goods

=P*Q-TC

Term

 

 

Elasticity of Demand

Definition

This measures the response of quanity demanded to a change in a good's own price

 

Formula: %Change in Qd/%Change P

Term

 

 

Elasticity of Suppy

Definition

This measures the response of quanity supplied to a change this good's own price

Formula: % Change in Qs/% Chnage in P

Term

 

 

Elastic Demand

Definition
-infinity-(-1)
Term

 

 

Unit Elastic Demand

Definition
-1
Term

 

 

Inelastic Demand

Definition
-1-0
Term

 

 

Elastic Supply

Definition
1-infinity
Term

 

 

Unit Elastic Supply

Definition
1
Term

 

 

Inelastic Supply

Definition
0-1
Term

 

 

Income Elasticity of Demand

Definition
%Change Demand for good X/%Change Income of Consumers
Term

 

 

2nd Law of Demand

Definition
The longer a price change persists, the greater the change in quanity demanded. Demand curves are more elastic in the long run than the short run 
Term

 

 

2nd Law of Supply

Definition
The longer a price change persists, the greater the change in quanity supplied. Or supply is more elastic in the long run than the short run
Term

 

 

Price Ceiling

Definition

The maximum legal price. If price ceiling is above the equilibrium price, than it is non-binding and has no affect on market.

If the price ceiling is below the equilibrium then it will affect the market.

Term

 

 

Price Floor

Definition

The minimum legal price. If the floor is set below the equilbrium price is non-binding, no affect on the market.

If the floor is above the equilbrium price it is binding and effects the market.

Term

 

 

Price Takers

Definition
Must take the market price as given. They face a perfectly competitive market
Term

 

 

Price Searchers

Definition
Another name for monoply and they face a downward sloping demand curve
Term

 

 

Cartels

Definition
Is seperate ownership of units of production whose owners collectively agree on a  price and quanity for a group of member firms (price fixing agreement)
Term

Dead Weight Loss

Definition

The costs to soceity created by an inefficiency in the market.

Deficiency due to an inefficient allocation of resources.

Lost in production due to inaccurate forecasting of labor.

Term

 

 

Price Discrimmination

Definition
The attempt to redistribute the surplus without diminishing the gains from trade
Term

 

 

1rst Degree of Discrimmination

Definition
Charging what the market will bear. Haggling down price from the listed price.
Term

 

 

2nd Degree of Discrimmination

Definition
Quanity discounts or versioning.
Term

 

 

3rd Degree of Discrimmination

Definition
Seperate markets and costumers groups, such as age.
Term

 

Free Riders

 

Definition
Exists when people enjoy the benefits of governments provided goods independent of whether they pay for them.
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