Econ 510 Exam 1 Study Guide

Intermed micro Exam 1 Chapter 1 (Powerpoint Slides) Economics- numberless wants and limited resources Micro economic science- Branch of economics that deals with the bearing of individual economic units. Units such as, consumers, firms, workers, and investors, as well as the foodstuffs that these units comprise. Macroeconomics- Branch of economics that deals with combine economic variables. Such as the level and growth rate of issue output, interest rates, unemployment, and inflation. Micro Economics is a story of trade-offs that consumers, workers & firms face and shows how these trade-offs ar outdo made.Key Players Consumers, Workers, Firms mess offs for Consumers Limited Incomes To save or to spend. If save then for HOW LONG and of-course HOW some(prenominal) If spend then on WHAT and HOW oftentimes This gives birth to the CONSUMER THEORY, which talks about the preferences, choices, service etc. Trade offs for Workers Time vacuous Vs. Labor Whether and when to enter the work soldiers. Pay scale is dependent on education Choice of employment uncivilised but high paying VS rock-steady but less money Trade offs for Firms What to say? How much to levy? deterrent example Any comp whatever in the being would love to produce everything and reap boodle but scum bagt do it.Central planned economy- Prices are set by the govt In a market economy- Prices are determined by the interactions of consumers, workers, and firms. These interactions issue forth in marketscollections of depraveers and sellers that together determine the cost of a dandy. In economics, EXPLANATION and foresight are ground on theories and models. Theories- are developed to explain observed phenomena in terms of a set of radical rules and assumptions. Model is a mathematical representation, based on economic theory, of a firm, a market, and some other entity.Positive Analysis describing intercourseships of drift and violence. Normative Analysis Analysis examining questions of what ought to be. agonistical foodstuff market with MANY spoilers and sellers affair identical products so that individually buyer and seller is a equipment casualty taker. Non-Competitive food market Seller or buyer squeeze out influence the harms Market Boundary geographic and RANGE of products Why is boundary definitive? To get to know about existent and potential competitors and its helpful in do Public plicies. Example Pain Killers in truth Vs. NOMINAL expensesNominal bell Absolute price of a reliable, UNADJUSTED for inflation existent Price Price of a darling relative to an aggregate measure of prices price ADJUSTED for inflation Consumer Price ability Measure of the aggregate price level. producer Price Index Measure of the aggregate price level for INTERMEDIATE products and in large quantities goods. REAL vs. NOMINAL pricing The unfeigned price of testis in 1970 dollars is reckon as follows The unfeigned price of testis in 1970 d ollars is calculate as follows The touchable price of ballock in 1990 dollars is calculated as follows Public Policy * big impact on Economics * raft mixed bag course of the marketChapter 2 (Powerpoint Slides) sum up hoist Relationship in the midst of the touchstone of a good that producers are volition to sell and the price of the good The return roll is upward slopping The high the price, the more(prenominal) firms are able and voluntary to produce and sell. If mathematical product cost fall, firms can produce the like sum of money at a lower price of a large total at the same price. The go forth turn off then shifts to the properly. attach chart by distribute The cede geld is thus a relationship between the metre supplied and the price. We can write this relation as an equation QS = QS(P) Other variable That Affect Supply are end product costs, including wages, interest charges, and the costs of raw materials. When production costs simplificati on, output ontogenesiss no subject area what the market price happens to be. The entire planning trim thus shifts to the right. Change in communicate or Shifts in the supplement curl Vs Change in the measuring rod supplied or Movements along the fork over rationalise. The make Curve Relationship between the amount of a good that consumers are willing to buy and the price of the good. Equation can be written QD = QD(P) Insert interpret by slide by A higher withdraw diverge shifts the lead curve to the right. Downward Sloping) Shifting the select Curve If the market price were held constant at P1, we would expect to see an gain in the standard submitedsay from Q1 to Q2, as a final result of consumers higher incomes. Because this increase would make it no matter what the market price, the result would be a shift to the right of the entire demand curve. Insert interpret by hand Shifting the inquire Curve Substitutes Two goods for which an increase in the pric e of one leads to an increase in the sum of money demanded of the other. Complements Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.THE MARKET implement The market clears at price P0 and quantity Q0. At the higher price P1, a surplus develops, so price falls. At the lower price P2, there is a shortage, so price is bid up. Insert interpret by hand balance (aka market clearing) price Price that equates the quantity supplied to the quantity demanded. Market Mechanism- Tendency in a free market for price to miscellany until the market clears. Surplus emplacement in which the quantity supplied exceeds the quantity demanded. deficit Situation in which the quantity demanded exceeds the quantity supplied. CHANGES IN MARKET EQUILIBRIUMNew Equilibrium succeeding(a) Shift in Supply When the yield curve shifts to the right, the market clears at a lower price P3 and a bigger quantity Q3. Insert interpret by hand New Equ ilibrium hobby Shift in read When the demand curve shifts to the right, the market clears at a higher price P3 and a larger quantity Q3. Insert interpret by hand New Equilibrium pas beat Shifts in Supply and film Supply and demand curves shift over time as market conditions convince. In this example, rightward shifts of the show and demand curves lead to a some higher price and a much larger quantity.In general, changes in price and quantity depend on the amount by which each curve shifts and the shape of each curve. Insert chart by hand From 1970 to 2007, the sure (constant-dollar) price of eggs send packing by 49 percent, while the real price of a college education move up by 105 percent. What are the realistic reasons for such a stabbing change The mechanization of poultry farms precipitously lessen the cost of producing eggs coupled with sharp decline in demand for eggs shifted by health-conscious population who tended to avoid eggs.As for college, increases in the costs of equipping and maintaining modern classrooms, laboratories, and libraries, along with increases in faculty salaries, pushed the supply curve up. Demand for college increased as a larger percentage of a ontogeny number of high school graduates dogged that a college education was essential & paying. Market for Eggs The supply curve for eggs shifted downward as production costs fell the demand curve shifted to the left-hand(a) as consumer preferences changed. As a result, the real price of eggs fell sharply and egg consumption rose. Insert Graph by hand Market for College EducationThe supply curve for a college education shifted up as the costs of equipment, maintenance, and staffing rose. The demand curve shifted to the right as a maturement number of high school graduates in demand(p) a college education. As a result, both(prenominal) price and enrollments rose sharply. Insert Graph by hand Supply and Demand for New York City Office lacuna Following 9/11 the supply curve shifted to the left, but the demand curve in like manner shifted to the left, so that the average term of a contract price fell. Insert Graph by hand shot Percentage change in one variable resulting from a 1% increase in a nonher.Price malleableity of Demand Percentage change in quantity demanded of a good resulting from a 1% increase in its price. one-dimensional Demand Curve Demand curve that is a STRAIGHT LINE. Linear Demand Curve The price cinch of demand depends not only on the set up of the demand curve but also on the price and quantity. The elasticizedity, therefore, varies along the curve as price and quantity change. cant is constant for this linear demand curve. well-nigh the top, because price is high and quantity is small, the elasticity is large in magnitude. The elasticity becomes littler as we move down the curve.Insert Graph by hand Infinitely Elastic Demand Principle that consumers will buy as much of a good as they can get at a single price, b ut for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit. a. ) For a horizontal demand curve, ? Q/? P is infinite. Because a tiny change in price leads to an enormous change in demand, the elasticity of demand is infinite. Insert Graph by hand Completely inflexible Demand Principle that consumers will buy a fixed quantity of a good regardless of its price. b. For a upright piano demand curve, ? Q/? P is zero. Because the quantity demanded is the same no matter what the price, the elasticity of demand is zero. Insert Graph by hand Other Demand Elasticities Income picnic of Demand Percentage change in the quantity demanded resulting from a 1% increase in income. Cross-Price Elasticity of Demand Percentage change in the quantity demanded of one good resulting from a 1% increase in the price of another. Elasticities of Supply Price Elasticity of Supply Percentage change in quantity supplied resulting from a 1% increase in price.SHORT-RUN vs LONG-RUN ELASTICITIES Demand gaseous state Short-Run and Long-Run Demand Curves a. ) In the short run, an increase in price has only a small effect on the quantity of gasoline demanded. Motorists may drive less, but they will not change the kinds of cars they are driving overnight. In the longer run, however, because they will shift to smaller and more fuel-efficient cars, the effect of the price increase will be larger. Demand, therefore, is more elastic in the long run than in the short run. Insert Graph by hand