Macro Econ 2030
suppose that you have a choice between going to the movies with a friend for two hours or working at your job. if you go to the movies, you will spend hours $7 on a ticket and $5 on popcorn. if you choose to work, you will earn $10 an hour. What is your opportunity cost of going to the movies?
$32 (everything you give up to see the movie- the money for the ticket, the money for the popcorn, and the foregone income)
percentage change
% change in an economic variable= new-old/old x 100
area of a triangle
1/2 base x height
Candace can perform either a combination of 35 manicures and 70 pedicures or a combination of 50 manicures and 45 pedicures. if she now performs 35 manicures and 70 pedicures, what is the opportunity cost of performing an additional 15 manicures
25 pedicures
if the rice of pineapple juice was 4.50 a gallon and it is now 5.75 a gallon, what is the percentage change in the price
27.7%
suppose scientist provide evidence that chocolate pudding increases the bad cholesterol levels of those who eat it. what would you expect to see
a decrease in the demand for chocolate pudding
demand curve
a graphical representation of the relationship between the price of a good and the quantity demanded of that good
supply curve
a graphical representation of the relationship between the price of a good and the quantity demanded of that good
ceteris paribus
a latin phrase meaning "other things equal." Economists use this phrase to mean "if other conditions are the same."
market
a market is a group of buyers and sellers of of a particular good or service
price makers
a seller who is able to set the price of the goods being sold
price takers
a seller who must accept the market price for the products they provide
demand schedule
a table showing the relationship between he price of a good and the quantity demanded of that good
supply schedule
a table showing the relationship between the price of a good and the quantity supplied of that good
the willingness of citizens to pay for vaccinations does not include the benefit society receives from having vaccinated citizens who cannot transmit an illness to others. this extra benefit society gets from vaccinating its citizens is known as
an externality
an outward sift of a nation's production possibilities frontier can occur due to
an increase in the labor force
if a decrease in income leads to an increase in the demand for frozen taquitos, then frozen taquitos are
an inferior good
if the damand for a product increases, then we would expect equilibrium price
and equilibrium quantity both to increase
which of these activities will most likely result in a positive externality a. a college student buys a deck of cards to play solitaire in her dorm b. an elderly women plants a flower garden on the vacant lot next to her house c. an executive purchases a book to read on a business trip d. a 10 year old uses his allowance to buy new Nike shoes
b.
suppose your management professor has been offered a corporate job with a 30 percent pay increase. he has decided to take the job. for him, the marginal
benefit of leaving was greater than the marginal cost
if consumers often purchase muffins to eat while they drink their lattes at local coffee shops, what would happen to the equilibrium price and quantity of lattes if the price of muffins rises
both the equilibrium price and quantity of muffins would decrease
in economics, capital refers to
buildings and machines used in the production process
if a seller in a competitive market chooses to charge more than the going price, then
buyers will make purchases from other sellers
which of these activities will most likely impose a negative externality a. betty plants flowers in her garden b. bonnie gets the flu vaccine c. bridget drives her car after having too much alcohol to drink d. becky buys a new flat screen tv
c.
the production possibilities frontier isa graph that shows the various combinations of output that an economy
can produce
normative analysis
concerned with "what ought to be." it is judgmental, prescriptive, and reflects someones opinion rather than fact.
lead is an important input in the production of. crystal. if the price of lead decreases, then we would expect the supply of substitute good
crystal to increase
suppose that McDonald's successfully implements serve kiosks in their restaurants, this investment in technology allows the company to reduce the number of employees at each location. all else equal, this technological improvement would ______ the equilibrium price for its products and _______ the equilibrium quantity consumed
decrease; increase
nemo rents 5 movies per month when the price is $3 per rental and 7 movies per month when the price is $2.50 per rental. nemo's demand demonstrates the law of
demand
when ketchup prices rose, sellers increased their quantity supplied of ketchup
demonstration of law of supply
assumptions
economic assumptions provide a way to allow economists to simplify the complex world
the opportunity cost of taking an online history class is
equal to the highest value of an alternative use of the time and money spent on the class
microeconomics
focuses on individual decisions
macroeconomics
focuses on the aggregate data across the economy
inventory
goods and materials held for sale or production at a later date
outputs
goods and services produced by firms
inferior goods
goods for which, ceteris paribus, an increase in income leads to a decrease in demand (and a decrease in income leads to an income in demand)
normal goods
goods for which, ceteris paribus, an increase in income leads to an increase in demand (and a decrease in income leads to a decrease in demand)
complements
goods for which, ceteris paribus, an increase in the price of one good leads to a decrease int he demand for the other good ( and a decrease in the price one good leads to an increase in demand for the other goods)
substitutes
goods for which, ceteris paribus, an increase in the price of one good leads to an increase in demand for the other good ( and a decrease in the price of one good leads to a decrease in the demand for the other good)
bill is restoring a car and has already spent $4000 on the restoration. he expects to be able to sell the car for $5800. bill discovers that he needs to do an additional $2400 of work to make the car worth $5800 to potential buyers. he could also sell the car now, without completing the additional work, for $3800. what should he do? ( hint: think about his marginal cost of the additional work versus the marginal benefit of the additional work)
he should sell the car now for $3800
revenue
how much the firm makes from selling their output.
factors of production
include the inputs that are used to produce output. (land, labor, capital)
land
includes an input that is a natural resource, including things such as lumber, stone materials, or water
labor
includes any human work
capital
includes any input that has been produces and will be used to produce something else
studies have shown that drinking one glass of red wine per day may help prevent heart disease (hint: increases demand) assume this is true, and a fungal disease destroys a large portion of the grape harvest of california vineyards (hint: decreases supply) in the market for red wine, these two developments would
increase demand and decrease supply, resulting in an increase in the equilibrium price and an ambiguous effect on the equilibrium quantity of red wine
auburn is a small college town in alabama. in august each year, when auburn university begins classes for the fall semester, the market demand for the fast food in auburn
increases
currently you purchase ten frozen pizzas per month. you will graduate from college in december, and you will start a new job in January. you have no plans to purchase frozen pizzas in January. for you, frozen pizzas are
inferior good
another term for factors of production
inputs
the decisions of firms and households are guided by prices a self- interest in a
market economy
a competitive market is a market in which
no individual buyer or seller has any significant impact on the market price
mitch has $100 to send and wants to buy either a new amplifier for his guitar or a new mp3 player to listen to music while working out. both the amplifier and mp3 player cost $100, so. he can only buy one. this illustrates the basic concept that
people face trade- offs
the adage, "there is no such things as a free lunch," is used to illustrate the principle that
people face tradeoffs
suppose the state of Massachusetts passes a law that increases the tax on alcoholic beverages. as a result, residents in Massachusetts start purchasing their alcohol in surrounding states. which of the following principles does this best illustrate
people respond to incentives
according to the law of demand, ceteris paribus,
quantity demanded will decrease as price increases and increase ad price decreases
according to the law of supply, ceteris paribus,
quantity supplied will increase as price increases and decreases as price decreases
when the price of a good decreases, sellers produce less of the good
representation of the law of supply
economics deals primarily with the concept of
scarcity
a monopoly is a market with one
seller, and that seller sets the price
when the price of a good is higher than the equilibrium price
sellers desire to produce and sell more than buyers wish to purchase
production possibilities frontier
shows the combinations of output an economy can produce
two-good world assumption
simplifies reality by assuming a location where there are only two goods capable of being produced and/ or consumed
two-country world assumption
simplifies reality by assuming that the model only involves two people or two countries who can produce and consume the goods/services in question
law of supply and demand
states that the price of a good adjusts to bring equilibrium to the quantity supplied and demanded
law of demand
states the relationship between price and quantity demanded. It says that, ceteris paribus, the quantity demanded of a good falls when the price of a good rises (and the quantity demanded of a good rises when the price of a good falls)
law of supply
states the relationship between price and quantity supplied. it says that, ceteris paribus, the quantity supplied of a good falls when the price of a good falls (and the quantity supplied of a good rises when the price of a good rises)
ashley bakes bread that she sells at the local farmer's market. if she purchases a new convection oven that reduces the costs of baking bread (an advance in technology) the
supply curve for ashley's bread will increase
individual supply
supply of one individual firm
wages
the amount a firm pays a worker per hour
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to produce
rent
the amount the firm pays for inputs like location
this diagram is an economic model, incorporates two types of decision makers: households and firms, and represents the flows of inputs, outputs, and dollars
the circular-flow diagram
individual demand
the demand of an individual consumer
profit
the difference between a firm's revenues and its cost of productions
equilibrium price
the market clearing price where the quantity of the good that buyers are willing and able to buy exactly equals the quantity that sellers are willing and able to sell
assume the market for pork is perfectly competitive. when one pork buyer exits the market,
the price of pork does not change
when computing the opportunity cost of attending a concert you should include
the price you pay for the ticket and the value of your time
input prices
the prices of land, labor, and capital that are used to produce output. as input prices increase, supply decreases because the cost of production increases. as input prices decrease, supply increases because the cost of production decreases
equilibrium quantity
the quantity for which supplied equals quantity demanded
shortage
the situation of excess demand that results when the market price is below equilibrium price and quantity demanded is greater than quantity supplied
surplus
the situation of excess supply that results when the market price is above equilibrium price and quantity supplied is greater than quantity demanded
positive analysis
the study of "what is?" it is descriptive and can be tested with data. however, it doesn't have to be a true fact
market demand
the sum of all individual demands for a particular good or service (obtained by adding the individual quantities demanded at every price for each buyer participating in the market)
market supply
the sum of all individual supply for a particular good or service (obtained by adding the individual quantities supplied at every price for each seller participating in the market)
hurricane katrina damaged a large portion of oil refining and pipeline capacity int he gulf coast states. in the market for gasoline
the supply curve shifted to the left resulting in an increase in the equilibrium price
years ago, thousands of country music fans risked their lives by rushing to buy tickets for a willie nelson concert at carnegie hall. this behavior indicates
the ticket price was below the equilibrium price
for most students, the largest single cost of a college education is
the wages given up to attend school
competitive market
there are many buyers and many sellers, and each has a negligible impact on the market prices
when the price of a good or service changes
there is movement along a given demand curve
monopoly
there is only one seller in the market
capital goods
those goods that will be used in the future to produce more goods and services
if the supply of a product increases, then we would expect equilibrium price
to decrease and equilibrium quantity to increase
opportunuty cost
whatever must be given up to obtain some item
advance in technology
when new methods of production are used that increase productivity (ie output increases with a given amount of inputs) an advance in technology increases supply because the cost of production decreases
point of equilibrium
where supply and demand intersect
area of rectangle
width x height
