Micro Final Chapters 1-4

Resource

anything that can be used in production

Demand Curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Movement along the demand curve

A movement along the demand curve is a change in the quantity demanded of a good that is the result of a change in that good's price. Referred to as a change in quantity demanded Response to price changes for that good

Shifts of the demand curve

A shift of the demand curve is a change in the amount that consumers are willing to buy at each price. It is denoted by a new demand curve. Referred to as changes in demand Occur when the determinants of demand change (anything else, expect price).

Changes in expectations

Changes in expectation about future prices and income can affect demand today (either increase or decrease)

Complementary Goods

Goods frequently consumed in combination; when the price of good x rises, the demand for good y falls, ceteris paribus. (Examples might include Pepsi and Pizza, Cars and gasoline, etc.)

Constant opportunity cost

Resources are equally suited to produce either goods;Straight line PPF

If they produce only hamburgers, then in a single day Sarah can produce 10 hamburgers while Abe can produce 5 hamburgers. If they only make milkshakes, then in a single day Sarah can produce 10 milkshakes while Abe can produce 4 milkshakes. We then know that:

Sarah has an absolute advantage and a comparative advantage in making milkshakes.

Determinants of Demand

Tastes (desire for this and other goods) Income (of the consumer) Other goods (their availability and price) Expectations (for income, prices, tastes)

Increasing opportunity cost

The "law" of increasing opportunity cost says that we must give up ever-increasing quantities of other goods and services in order to get more of a particular good. Resources are not equally suited to produce either good; Bowed-out PPF (concave to the origin)

Quantity Demanded

The amount of a good or service that consumers are willing and able to buy at a given price. "Quantity demanded" is an expression of consumer buying intentions - an offer to buy - not a statement of actual purchases.

Law of Demand

The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.

Shape of the production possibilities curve

The slope of the PPF (straight line vs. bowed out curve) reflects the opportunity cost. The slope gives the trade-off between the two goods. It tells how the amount of one good that must be sacrificed in order to produce another unit of the other good

Changes in taste

Think bout the effects of advertising on a demand curve

All choices involve dome type of:

cost

Scarcity forces us to make:

economic choices

Absolute advantage is the basis for gains from trade

false

Production possibility frontier (PPF)

illustrated the trade-offs facing an economy that produces only two goods. The PPF shows the maximum quantity of one good that can be produced for any given production of the other. Assumes that all resources are used full and efficiently

Total production will be the greatest when

individuals (or countries) specialize in producing and trading for goods according to their comparative advantage. The principle of comparative advantage is the key to exchange and the gains from trade.

Choices

may be "ether-or" decisions or they may be "how much" decisions

Comparative advantage

the ability to produce a good at a lower opportunity cost than others could.

Absolute advantage

the ability to produce a good with fewer resources than other producers (i.e., better than other people).

The local Taco Hut charges the same price for everything on its menu: $3 will buy a taco, a burrito, or nachos. You buy the taco and think that if you had not purchased the taco, you would have purchased the burrito. The opportunity cost of the taco is:

the burrito

Scarcity

the imbalance between our desires and available resources

opportunity cost

the most desired goods or services that are forgone in order to obtain something else

measure of the opportunity cost

whatever you have to give up to make that choice, even if not monetary costs are involved

A friend comes up to you and offers to give you a free ticket to the local professional team's baseball game that night. You decide to attend the game. It takes five hours to go to the game and costs you $15 for transportation. If you had not attended the game, you would have worked at your part-time job for $8 an hour. What is the cost of you attending the game?

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Demand Schedule

A table showing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

Substitute Goods

Goods that substitute for each other; when the price of good x rises, the demand for good y increases, ceteris paribus. (Examples might include Pepsi for Coke, Fords for Toyotas, etc.)

Inferior Goods

Goods whose demand decreases when income increases

Normal Goods

Goods whose demand increases when income increases