Microeconomics Ch 1 - 6
Trade and comparative Advantage
-PPC is bowed bc individuals specialize in the production of goods for which they have comparative Adv. -For society to produce on its PPC, individ. must produce those goods for which they have a comparative ADv. & trade for other goods. -Adam Smith, humankind's proclivity to trade leads to individ. using their comparative Adv.
Two things to know supply/demand
1. The greater the difference between quantity supplied and quantity demanded, the more pressure that is for prices to rise or fall 2. When quantity demanded equals quantity supplied the market is in equilibrium. And In the free market, the forces of supply and demand interact to determine equilibriums qty & price.
Efficiency
Achieving a goal as cheaply as possible. the ratio of the output to the input of any system.Consumer satisfaction is maximized & opprtunity cost is minimized.
Profit Maximizing Resource Employment
The firm hires the profit maximizing amount of a resource at the point where MRP = MRC
Economic policy
an action (or inaction) taken by government to influence economic actions., a government policy for maintaining economic growth and tax revenues
Capitalism
an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals(capitalist) or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.resides w/ group called capitalist.1900's, Market Rules.
Natural experiment
an event created by nature that can serve as an experiment.
Self - confirming equilibrium
and equilibrium in a model in which people's beliefs become self - fulfilling; so people think the economy will go into a depression, it will
Set theory model
are based only on formal logical relationships.
Sunk cost
a cost that has already been incurred and that cannot be changed by any decision made now or in the future; not counting.not relevant in economic decision rule.
The agent - based computational (AC E) model
a culture dish approach to the study of economic phenomena in which agents are allowed to interact any computationally constructed environment and the researcher observes the results of the interactions.
nonlinear curve
a curve that is drawn as a curved line Slope is measured by rise over run of a line tangent to that point. Max & Min. points of nonlinear the slope is zero.
Demerit good or activity
a good or activity that government believes is bad for people even though they choose to use the good or engage in the activity
Merit good or activity
a good or activity that government believes is good for you even though you may not choose to engage in that activity or consume the good
Abduction
a method of analysis that uses a combination of inductive & deductive methods; AKA modern economics;compliment each other and give reason to investigate facts.
deduction
a method of reasoning in which one deduces a theory based on a set of almost self-evident principles; assumes people are rational & self-interested; general accepted principles , explain individual cases or events,develops models and conclusion based on those principals.
Behavioral models difficult to test
behavioral economics depends on the specific context of the choices of all so it has many models; many more patterns can be discerned in the data but it is hard to know what pattern to focus on; experimental economics both laboratory and field can test alternative building blocks; the endowment effect people value something more just because they have it, can be included
Externality
economic side effect that affects an uninvolved third party
Determinants of Demand
Consumer income, prices of substitute and complementary goods, consumer tastes and preferences, consumer speculation, and number of buyers in the market all influence demand
Consumer Sovereignty
Consumer wishes determines whats produced. doesn't reign in the US. When business decides what to do but the success comes from consumer sovereightny.
Market Economy (Capitalism)
Coordinate by Price Mechanism and will allocate scarce resources efficiently. An economic system based upon the fundamentals of private property, freedom, self-interest, and prices.US everything deter. free market and supply & demand. strengths: everyone's wants filled,adjust to change gradually,individual freedom,lack of govt interference, incredible variety of goods & services, consumer satisfaction.
Global corporation
Corporation with substantial operations on both the production and sales sides in more than one countryand increasing in importance. Create jobs , bring new technology, & provide competition for domestic co.
Determinants of Supply
Costs of inputs, technology and productivity, taxes/subsidies, producer speculation, price of other goods that could be produced, and number of sellers all influence supply
Regression models
Example of a empirical model.the primary tool of an Imperial cult model in which one specifically relates one set of variables to another; a regression finds a line that best fits a combination of points; the cold fission of the termination; the larger of cold fission of determination, the better fit of the regression.
Shortage
Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied
Surplus
Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.
Market Equilibrium
Exists at the point where the quantity supplied equals the quantity demanded
Positive externality
Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good
Negative externality
Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good
Private goods
Goods that, when consumed by one individual, cannot be consumed by another
Public goods
Goods, provided or secured by the state, available to society and which no private person or organization can own.parks, playgrounds, roads, national defense.
Production possibilities model
Presented in both table & graph; opportunity cost concept.
Demand
refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant.
Supply
refers to a schedule of wanting a seller is willing to sell per unit of time at various prices, other things constant.
Quantity supplied
refers to a specific amount that will be supplied at a specific price, graphical term refers to a point on a supply curve
Slope
rise over/ run or vertical/horizontal or Y/X
Precepts
rules establishing standards of conduct;, policy rules that conclude that a particular course of action is preferable; must be combined with knowledge of real world economic institutions & values judge mt deter. the goals for which one is striving.
Economic & Market forces
rxns to interaction of economic, social, & historical forces.Social,culture, & political forces influence market. Political & social forces work vs. the invisible hands.
Production possibility curve
shows the maximum combinations of goods and services that can be produced by an economy in a certain time period, given that all resources are used efficiently; used to illustrate opportunity cost maps the table in 2 dimensional graph.Points outside the curve is unattainable, points within the curve is inefficient. specialization & trade known to shift PPC.Typical outward bow of the PPC is result of comparative advant. & trade.
Socialism/Command economy
economic system based on individuals' goodwill towards others, not their own self=interest, and in which , in principle, society decides what, how, and for whom to produce.principle, society decides what, how, and for whom to produce.Belief that resources should be dominantly owned collectively by the people of the nation ,admin. thru. govt on their behalf.Solves the what , how, and for whom.
Political and social forces and equilibrium
farmers use political pressure to obtain prices that are higher than equilibrium; social pressure often offset economic pressure and prevent unemployed individuals from except the work for wages; existing firms conspired to limit new competition by lobbying Congress to pass restrictive regulation and by devising pricing strategies to scare off new entrant; reenters often organize to pressure local government to say Printer Price of Apartments.
Evolving economic system
feudalism->Mercantilism->Industrial Revolution-> Capitalism constant state of evolution.
Coefficient of determination
is a measure of the proportion of the variability in the data that is accounted for by statistical data.
Behavioral economics
is a microeconomic analysis that uses a broader set of building blocks that rationality and self- interest. Ex. People behave purposefully (is behavior reflected reason but not necessarily rational judgment), people follow their enlightened self - interest (people care from other people as well as themselves). They use all types of models including mathematical and ACE.
Models
is a simplified representation of the problem or questions that captures the essential issues, graphs are normally use.
Results of taxes and tariffs
is an increase in a equilibrium prices(inclusive of tax) and reduce equilibrium quantities.
Improved: work in modern economics
is highly empirical; both traditional and modern behavioral economic building blocks lie on experiments and statistical analysis of real-world observation; the relationship interested model is empirically studied; econometric is statistically analysis of economic data; and empirical model is a model that statistically discovers a pattern in the data.Models based on modern bldg blocks often better fit observed behavior, they often do not generalize to contexts outside the one being studied.
Tariff
is in excise tax on an input a good.Tariff & taxes paid by suppliers shift the supply curve upby the amount of the tariff and tax.
Equilibrium quantity
is the amount bought and sold at the equilibrium.In the rea world you must add political & social forces to the supply/demand model. when you do, equilibrium is likely not going to be where qty demanded equals qty supplied.
Exchange rate
is the price of one currency in terms of another one ,it's determined by supply and demand.
Equilibrium price
is the price towards which the invisible hand drives the market, quantity demanded equals quantity supplied.
Shift in demand
is when a change in anything other than price that affects demand changes the entire demand curve the graphical representation of the effect of anything other than price on demand.
Normative economic
judgments about "what ought (should) to be" in economic matters (opinions, subjective), The part (opinion) of economic involving value judgement about the economic "should be like".
induction
looks at empirical evidences 1st and infers priciples from those observation.a type of reasoning in which a conclusion is drawn from a series of facts (reason leads one to a conclusion apparent in the facts)patterns in data.technology improvements lowers the cost of using inductive methods.General principles are formed observed events in real world by collecting & analyze data.
Economic Reasoning
making decisions on the basis of costs and benefits. every choice has costs and benefits and decisions are made by comparing them.
Modern economics
many use traditional or behavioral building blocks; much more empirical - used inductive methods; use both simple and more competition models.two types of models used is game-theory & ACE.use multiple frames & carefully distinguish theorems that fo;;ow from models from precepts that rely on theorems but also rely on judgement about history and institution.
Excess demand
meaning shortage, want to teach demand is greater than quantum supplied.
Excess supply
meaning surplus, which is quantity supplied is greater than quantity demanded and some suppliers will be able to sell order goods.
Nonprice rationing
methods are rationing scarce resources To cope with sudden increases in demand for housing that would otherwise cause rates to explode and forth many poor people out of the apartment the negative effect occurs over time as buildings began to deteriorate and number of people looking to rent an unable to find apartment increases
Game theory model
models in which one analysis the strategic interaction of individuals when they take into account the likely response of other people into their actions.
Heuristic
models that are expressed informally in words.Can be based on either traditional bldg blocks like the model of Landsburg or modern bldg blocks like the models of Frank.
Economic model
simplified representation of the real world that economists develop to describe how the economy behaves and is expected to perform in the future., A framework that places the generalized insights of the theory in a more specific contextual setting
Shift factors of demand
societies income, the prices of other goods, taste, expectations, taxes on and subsidies to consumer.
Theorems
statements that can be proven;, propositions that are logically true based on the assumptions in a model
Econometric
statistical analysis of economic data.
Empirical model
statistically discovers a pattern in the data.To be scientific tested, must be tested against another set of data.
butterfly effect
strange attractor models in which a small change causes a large effect; ex. a butterfly flapping its wing in China can cause the output of the US economy to fall significantly.
Economic Institution
system of roles and norms that governs the production, distribution, and consumption of goods and services. Operate differ. from economic theory predicts.
Interaction of supply and demand
that is where we talk about equilibrium excess supplies exist demand equilibrium price and quantity in the fallacy of composition.
Comparative advantage
the ability of an individual, firm, or country to produce(specialize) a good or service at a lower opportunity cost than other producers.Some resources have comparative advantage over other resources. Ex. guns increases as we produce more guns.relates to free trade.
Profit
the amount of money left over after all the costs of production have been paid
Marginal opportunity cost
the amount of one good or service that must be given up to obtain one additional unit of another good or service, no matter how many units are being produced
Output
the amount produced; product or yield: the daily output of automobiles.Rise of markets coincided w/ significant increase(specialization, trade, & competition) output.
Positive economic
the analysis of facts or data to establish scientific generalizations about economic behavior, IS THE STUDY OF WHAT IS, AND HOW THE ECONOMY WORKS, deals with efficiency
Art of Economics/Political economics
the application of the knowledge learned in positive economics to the achievement of the goals determined in normative economics.
Interpolation assumption
the assumption that the relationship between variables is the same between points as it is at the points
e-commerce
the buying and selling of goods and services over the internet
Equilibrium
the concept comes from physics - classical mechanics. It is a concept in which opposing dynamic forces cancel each other out. price, in supply/demand analysis, equilibrium means that the upward pressure on prices exactly offset by the downward pressure on price
Euro
the currency used by 60 of the members of the European Union.
Laissez-faire
the doctrine that states that government generally should not intervene in the marketplace Means let events take their course A Precept
Limited liability
the stockholder's liability is limited to the amount the stockholder has invested in the company
Macroeconomic
the study of the behavior and decision making of entire economies;, That part of the discipline of economics that deals with the economy as a whole. inflation, unemployment, business cycles, & growth.
Microeconomics
the study of the choices made by households, firms, and government and how these choices affect the markets for goods and services
Law of One Price
the wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country
Economic Insight
theories tie together economists terminology & knowledge about economic institutions. to abstract to apply specific casas theorems must be combined with knowledge of real world and value judgemt to deter.economic goals for society.
Limitations of supply/demand analysis
they are tools that help us enormously when used appropriately other things are assumed constant if other things change, then one cannot directly applies supply/demand analysis sometimes they're both interconnected, making it impossible to hold other things constant, use without adjustment is most appropriate for questions with the goods are a small percentage of the entire time that is when the other things constant assumption will most likely hold.
National Economies
they have govt.
Path- Dependent models
tipping - point models are a type of broader group of models in which the pad to equilibrium affects the equilibrium.
Quantity demanded
to a specific amount that will be demanded per unit of time at a specific price, other things constant
Scarcity
unlimited wants vs. limited resources;forces consumers to make choices. goods available too few to satisfy individuals desires and degree constantly changes. qty of goods, services, & unusable resources depends on technology & human actionAn economic problem that can never be solved.
Coercion
use of force to obtain compliance; limiting peoples wants & increasing the amount of work individuals are willing to do to fulfill those wants.
Earlier economics
use traditional building blocks; primarily deductive methods; use simple Data S/D models. Their assumptions was rationality itself - interest
Input
what you put into a production process to achieve an output
Price ceiling
when a government wants to hold prices down to favor buyers, it imposes a price ceiling. It is a government imposed limit on how high a price can be charge. Price ceilings create shortages; price ceilings below equilibrium price will have an effect on the market; with price ceiling existing goods are no longer ration entirely by price so other methods of rationing arrives.
Applications: US Textile Production & Trade
-200 yrs. ago -Now, countries w/ cheaper labor (Bangladesh) -Gains in trade are higher worker wages for Bangladesh & lower -priced cloth for U.S. consumers.
US Historical Perspective
-Market economy works thru system of rewards & paymts can do what ever you want as long as its legal flunctuation in prices play a central role in coordinating individ. wants in a market economy; which most economist believe.
Government
-plays 2 general role -Actor- collects money in taxes & spend that money on projects, such as defense & education -Referee- sets the rule that determine relations btwn business & households. reduce the amplitude of the trade cycle to stop excessive highs & lows. 6 roles of govt: provide sable set of institute. & rules, promote effective & work competition, correct for externalizes, ensure economic security & growth, provide public goods, adjust for undesirable market results.
Law of One Price
-wages of equal workers in one country will not differ significantly from the wages of workers in another instit. similar country. -If US loses its Comp Adv. in innovation the US wages will decrease relative to wages in many other countries We live better bc of trade & outsourcing.
Necessity
0 < Ei < 1, anything that cannot be done without or that is greatly needed
Coordination Problems
1. what, how much, to produce.2.how to produce it. 3. for whom to produce it.solving these problems leads us to scarcity.
What equilibrium isn't
1.it is in a state of the world, it's a characteristic of the model - the frames were that you used to look at the world. 2. Is it inherently good or bad, it's simply a state in which dynamic pressure offset each other.
Experimental economic
A branch of economics that studies the economy through controlled laboratory experiments.
Inferior Goods
A good for which higher income decreases demand
Normal Goods
A good for which higher income increases demand
Invisible hand theory
A market economy, through the price mechanism, will tend to allocate resources efficiently; , Adam Smith's theory that the actions of independent, self-interested buyers and sellers will often result in the most efficient allocation of resources
Four-firm concentration ratio
A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly
Industrial revolution
A series of improvements in industrial technology that transformed the process of manufacturing goods
Oligopoly
A very diverse market structure characterized by a small number of interdependent large firms, producing a standardized or differentiated product in a market with a barrier to entry
Market force
An economic force that is given relatively free rein by society to work through the market:forces ration by changing prices when their is a shortage the price goes up, when a surplus the prices goes down. * not operative. D/S ans. the fund. economic ques.
Mercantilism
An economic system in which govt determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities.Government rules
Normal Profit
Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources
Perfect competition
Characterized by many small price-taking firms producing a standardized product in an industry in which there are no barriers to entry or exit
Business
Economic system in which goods and services are exchanged for one another or money, on the basis of their perceived worth. Also a name given to private producing units in our society, US allows the invisible hand to work but are guided by sovereignty. In the US use the what, how, and for whom.
Modern Economic
Economics, evolves & changes, based on both induction & deduction which is considered Abduction.
Govt & Choice Architecture
Economists are hesitant to have govt tell people what is bes for them, but behavioral govt might nudge peoples choices in a positive way ex. Default opt. bias
Luxury
Ei > 1, something that is an indulgence rather than a necessity
inefficiency
Getting less output from inputs that, if devoted to some other activity, would produce more output
Law of Demand
Holding all else equal, when the price of a good rises, consumers decrease their quantity demanded for that good. consumer demand more of a good the lower its price. Has price change , people change how much their willing to buy.hold true bc individuals can substitute.
Law of Supply
Holding all else equal, when the price of a good rises, suppliers increase their quantity supplied for that good; hold true bc individuals can substitute.
Economic Decision Rule
If the marginal benefits of doing something exceed the marginal costs, do it. If the marginal costs of doing something exceed the marginal benefits, don't do it.
* Macro/Micro
In macro, small side effects that can be assumed away in micro are multiplied enormously and can significantly change the results. To ignore them is to fall into fallacy of composition.
Free-Rider & free rider Problem
In the case of a public good, some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it, Is when people receive benefits from a public good without having to pay for it.
Economic force
Interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization, necessary rxns to scarcity always working, if price didn't ration food, there wouldn't be enough to go around the world. ration by changing price are not always likely to work.
Economic forces
Mechanism that ration scarce goods: interest rates, inflation, unemployment, economic growth, and other factors that affect the general health and well-being of a nation or the regional economy of an organization., forces that affect the availability, production, and distribution of a society's resources among competing users *Always operative
Collusive oligopoly
Models where firms agree to mutually improve their situation
Non-collusive oligopoly
Models where firms are competitive rivals seeking to gain at the expense of their rivals
World Bank
Multinational, international financial institution. that works to secure loans for developing countries.
Coordinating Global issues
No global govt to regulate global corp. but developed international institut. to promote negotiations & coordinate economic relations among countries. ex. united nations & world bank
Economic Growth
Occurs when an economy's production possibilities increase. This can be a result of more resources, better resources, or improvements in technology.
Government failure
Occurs when the government fails to correct adequately for market failure or takes actions that lead to a more inefficient outcome than the market.
Fixed inputs
Production inputs that cannot be changed in the short run. Usually this is the plant size or capital
Variable inputs
Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials
Productive Efficiency
Production of maximum output for a given level of technology and resources. All points on the PPF curve are productively efficient
Allocative Efficiency
Production of the combination of goods and services that provides the most (max) net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF/equilibruim
Freakonomics
Steven Levitt: teaches economics at the University of Chicago and was recently recognized as the best American economist under 40 o Fundamental Ideas: incentives are the cornerstones of modern life o The conventional wisdom is often wrong o Dramatic effects often have distant and subtle causes o "Experts" use their information advantage to serve their own agenda o Knowing what to measure and how to measure it makes a complicated world much less so. Once learned, is infectious.
Marginal Benefit (MB) /Decision rule 1
The additional benefit received from the consumption of the next unit of a good or service Consumers make rational decisions. If two products are of equal benefit to a consumer, then he or she will choose the cheaper product. If two products are the same price, the consumer will choose the one that provides the higher benefit.
Monopoly power
The ability of individuals or firms currently in business to prevent other individuals or firms from entering the same kind of business
Market power
The ability to set the price above the perfectly competitive level
Marginal Cost (MC)/ Decision rule 2
The additional cost incurred from the consumption of the next unit of a good or a service Limited income enforces choice. Consumers have to make choices as to what goods will be purchased or not purchased. Purchasing one item means that less funds are available to purchase other items.
Substitution Effect
The change in quantity demanded resulting from a change in the price of one good relative to other goods
Income Effect
The change in quantity demanded that results from a change in the consumer's purchasing power (or real income)
Producer surplus
The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price
Economic Profit
The difference between total revenue and total explicit and implicit costs
Consumer surplus
The difference between your willingness to pay and the price you actually pay. It is the area below the demand curve and above the price
Monopoly
The least competitive market structure, characterized by a single producer, with no close substitutes, barriers to entry, and price making power
Opportunity Cost
The most desirable alternative given up as the result of a decision, should always be < than benefit of what was chosen; basis of cost/benefit economic reasoning.Ex. must give up 1 dvd for 2 bks.descision are not made by dollars 7 cents.Under taking an activity is benefit you might have gained from choosing the next-best alternative.TANSTAAFL
Relative Prices
The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter
Price discrimination
The practice of selling essentially the same good to different groups of consumers at different prices
Absolute prices
The price of a good measured in units of currency
Outsourcing
The relocation of production once done in the United States to foreign countries. Occurs bc many other countries have a Comp. Adv. in labor costs. U.S has Comp. Adv. in technology, institutional structure, & specialized knowledge.
Economics
The study of how people coordinate their wants and desire, given the decision-making mechanism, social customs, & political realities of the society.people, firms, and societies use their scarce productive resources to best satisfy their unlimited material wants.subdivided 3 parts: pos. norm. & art of economics.
Total Welfare
The sum of consumer surplus and producer surplus
Globalization
The trend/growth toward increased cultural and economic connectedness between people, businesses, and organizations throughout the world. Broader than outsourcing. Provides larger markets than domestic economy increase of a number of competitors & competition can be a negative effect of globalization.
Complementary Goods
Two goods are consumer complements if they provide more utility when consumed together than when consumed separately
Substitute Goods
Two goods are consumer substitutes if they provide essentially the same utility to consumers
Exchange rate & comparative Adv.
US comp. Adv. in innovation results in higher wages in the Us As industries mature, tey move to lower wage countries. *In order to regain our comparative Adv. , the US exchange rate will decline and foreign wages will increase to make US exports cheaper and imports expensive.
Global Institution & Corporation
US econ. makes up 20% of worlds output & consumption,but only 6% of the world's land mass & less than 5% of worlds population. US intergrated w/ world's econ. Global Corporations
Corporation
a business owned by stockholders who share in its profits but are not personally responsible for its debts. no personal liab., able to get funds, avoid personal income tax. dis. adv. legal hassle to organize, pos. double tax on income, monitoring problems.
Partnership
a business owned by two or more persons who share the risks and rewards. easy to form. dis. adv.= limited to get funds,unlimited personal liab. even for ptnr blunder.
Stock
a certificate documenting the shareholder's ownership in the corporation
Economic principle
a commonly held economic insight stated as a law or general assumption, a statement about economic behavior or the economy that enables prediction of the probable effects of certain actions
feudalism
a political and social system that developed during the Middle Ages; nobles offered protection and land in return for service traditional rules
Rent control
a price ceiling on lands, set by government and see how that excess demand shows up in the middle; below market rents set by the government creates an enormous shortage of work, but it created severe hardship for those who didn't have a point.
Inverse relationship/ Negative slope
a relationship in which one variable decreases when another variable increases. Downward slope line.
Direct relationship
a relationship in which one variable increases with an increase in another variable. both variables change in the same direction
Income
a rise in income increases the demand for goods.
Market failure
a situation in which a market left on its own fails to allocate resources efficiently
Natural experiment
a situation in which groups to be compared are created by an unplanned, natural change in conditions rather than by manipulation of conditions by researchers
Linear curve
a straight-line demand curve; such a demand curve has a constant slope but usually has a varying price elasticity. Form is y=mx+b; shift is reflected by variable change in b. change in slope is reflected by change in m variable.
Precommitment strategy
a strategy in which people consciously placed limitations on their future actions, thereby limiting their choices.
Production possibility table
a table that lists a choice's opportunity costs by summarizing what alternative outputs you can achieve with your inputs
Sole proprietorship
business owned by one person.min. bureaucratic hassle. dis. adv. = limited to get funds, unlimited personal liab.
Nature of economics models
can be mathematical or heuristic; can be made from physical components or as computer simulations; modern economics are willing to use a wider range of models then did earlier economics; they use more of and into this, as opposed to deductive, approach to modeling.
Outsourcing
contracting out selected functions or activities of an organization to other organizations that can do the work more cost efficiently, The relocation of production once done in the United States to foreign countries.product of law of 1 price, why business is ship overseas where it is cheapest to produce.
Private property right
control a private individual or firm has over an asset
Economic Reality
controlled & directed by 3 types of forces: economic forces, political forces, & social forces.
The role of formal models
data, by themselves, have no meaning; they have to be interpreted using theory, models, and building blocks to be meaningful; economics use natural experiments which are events created by nature that can serve as an experiment; modern economics use simple model, but they also use models that allow for much more complex relationship among variables.
Market supply curves
derived from individual supply curves and slicing the same way that the market demand curve was the horizontal sum of all individual supply curves the market supply curve upward slope is determined by two different sources as price rises, existing suppliers supply more in new supplies into the market sometimes existing suppliers may not be willing to increase their quantities apply in response to an increase in prices, but a rising price often brings brand-new suppliers into the market.
Macroeconomics externalities
externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole
Price of inputs
firms produce to earn a profit since the profit is tied to costs is no surprise that cost will affect how much a firm is willing to supply if costs rise profits will decline any firm have less incentive to supply supply falls when the price of input rises if costs rise substantially, a firm might even shut down.
Excise tax
government impacts markets to taxation; it is a tax that is levied on a specific good.A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax
Quantity restrictions
government regulates markets with licenses, which limit entry into a market; many professions require licenses, such as doctors, financial planners, cosmetologist, electricians, or taxicab drivers; results of limited number of licenses in a market are increases in wages and an increases in the price of obtaining the license.increase equilibrium price and reduce equilibrium qty.
supply curve
graphical representation of the relationship between pricing on supply is the supply curve supply curve slopes upward to the right that upward slope captures the law of supply it tells us that the quantity supplied varies directly in the same direction with the price. It tells us how much will be offered for sale at various prices
Households
groups of individuals living together and making joint decisions. Supply labor w/ which businesses produce & govt govern.largest source of income is wage & salary. Also make major decision in the economy.
Types of economics models
heuristic, scientific and engineering, behavioral and traditional building blocks, behavioral economic, empirical, formal , butterfly effect, game theory, agent-based computational (ACE) in purple testing formal.
Adam Smith
humankind proclivity to trade leads to individuals using their comparative advant.
shift in supply
if the amount supply is affected by anything other than price that is by shift out of supply the graphical representation of the effect of a change in a factor other than price on supply include the price of imports used in production, technology, expectation, and taxes and subsidies to producers.
Principle of increasing marginal cost
in order to get more of something, one must give up ever-increasing quantities of something else. it increases the more you concentrate on the activity.
Inferior goods
increase in income reduces demand example urban mass transit in which a person whose income has risen tends to start riding the bus to work because they can't afford to buy a car goods.
The limits of heuristic models
most economic see heuristic models as a simple steppingstone to more formal models, heuristic models are not sufficiently precise, making their validity impossible to test; and scientific since we really don't know anything more about the world after using here restrict models than we did before, therefore science is not based on her restrict models; her restrict models must be extended to quantify and empirically test the arguments for a true understanding.
Shift in supply/demand
most useful when trying to figure out what will happen to equilibrium price and quantity if either supply or demand ships it deals with an increase in demand and a decrease in supply the excess demand pushes prices upward in the direction of the small arrow and decrease the quantity demanded an increase in the quantity supplied as it does so movement takes place along both the supply curve and demand curve; the outward push on price decreases the gap between the want to supplied in the quantity demanded is the gap decreases, the upward pressure decreases what long as the gap exist at all price will be pushed upward into the new equilibrium price..A change in demand (supply) is a shift of the entire demand (supply) curve.By minding your P's & Q's the shift of movemt along curveyou can almost describe all events in this term.
Policy makers
must decide which failure is least problematic a market or govt failure.
Objective Policy Analysis
obj:separates judgement from the analysis sub:reflects the analysts view of how things should be Positive, Normative, Art of economics.
United nation
organization design to achieve internat. cooperation but it has no ability to tax or enforce its policies on its members
default opt. bias
people tend to choose whatever is presented as the default opt.
Endowment effects
people value something more just because they have it, can be included.
Graph/coordinate system
pictures of points in a coordinate system in which points denote relationships btwn numbers. Ex. line, bar, pie graph/charts. One must be sure on whats being measured on the vertical and horizontal axis
Traditional models provide simplicity and insight
prefers staying with the narrow building blocks of rationality and self - interest; traditional models provide simple and clear results, which can highlight issues that behavior models cannot; some traditional economics have begun using a broader set of building blocks.
Fallacy of composition
the false assumption that what is true for a part will also be true for the whole for instance a loan supplier who lowers the price of his or her good. People will substitute that good for other goods, and the quantity of the good demanded will increase.
Movement long a demand curve
the graphical representation of the effect of a change in price on the Qantas demanded
Movement along a supply curve
the graphical representation of the effect of a change in price on the wanted to supply therefore is considered the changes in price cause changes in quantity supplied
Demand curve
the graphical representation of the relationship between price and quantity. The demand curve slopes downward because of the law of demand as the price goes up the quantity demanded goals down of the things constant other words, price and quantity demanded are inversely related.A change in qty demand (supplied) is a movement along the demand (supply) curve..
Market demand curve
the horizontal sum of all individual demand curves that is where firms don't care whether individual aid or individual be by their good they only care that someone buys there ggods so see more of the total goods.
TANSTAAFL
the knowledge of there are no such thing as a free lunch
The price of foreign currency
the market for foreign currency is called the foreign exchange ( Forex) market. People demand foreign currencies to buy those countries goods and assets. Exchange rates are determined by supply and demand.
Third party payer markets
the person who receives the good differs from the person paying for the good; the person who chooses how much the purchase doesn't pay the entire cost; equilibrium quantity and total spending can be much higher in third-party payer markets; goods from a third-party payer system will be rationed through social and political means.
Invisible hand
the price mechanism, the rise and fall of prices that guides our actions in a market
Entrepreneurship
the process of starting, organizing, managing, and assuming the responsibility for a business
price floor
when a government wants to prevent a price on falling below a certain level to favor suppliers it imposes the price will; is a government imposed limits on how low a price can be charge; price floors free access supply; price floors above equilibrium price will have an effect on the market.Price floors above market price creates surpluses. Has opposite effect of an excise tax, as it lowers the marginal cost of production, forcing the supply curve down
Thinking like a modern economist
when you put any problem or question to an economist, he or she will reduce the question to a model and work with the model and empirical evidence to understand the problem; the modeling approach is the modern economics approach.
Traditional economists
will study the logical implications of rationality and self - interest in relatively simple algebraic or graphical models such as the supply and demand model. Ex. People are completely rational, people are self - interested. They use all types of models including mathematical and ACE.
