Sleeman Midterm 1 : WWU Econ 206
What does scarcity mean to an economist?
the quantity demanded is greater than quantity supplied
What would cause the PPC to shift to the right?
- labor changing to tech - capital stock becomes larger
What would cause the PPC to shift to the left?
-capital stock was destroyed - labor force is smaller -tech is lost
What are the six determinants of supply ?
-price of inputs -technology -weather -government -price -number of supplies
What are the six determinants of demand?
-price of substitutes -price of complements -income -price -tastes -number of buyers
How did I define economics?
Economics is what economists do
What is the difference between explicit and implicit costs?
Explicit is what you paid, implicit is what you gave up
What does a demand curve mean to an economist?
It needs to be backed by an ability to pay (requires income, wealth, and access to credit)
What are the three questions that all economies must answer?
What, how, and who will produce the produce
At what point should you stop expanding an economic activity?
When the demand becomes a surplus
When is a good or service scarce?
When the demand is higher than the supply
How do supply and demand determine price?
When there is excess supply, the price of x will be bid down
Are incentives important in determining the decisions made by economic agents?
Yes, positive incentives are more effective than negative benefits
How is a market supply curve or market demand curve derived from the individual curves?
all markets are based off the individual
What is a budget constraint?
amount of things that can be bought until there is no more money to spend
Why does the PPC slope down to the right (neg slope)?
because we have to give up more of something to find the equalizing amount of the other type
How do economists define Marginal Benefit?
change in total benefit brought about in change in amount consumed
What is Marginal Cost and Marginal Benefit (MC=MB)?
change in total cost brought about by unit change in what we are doing
How do economists define Marginal Costs?
change in total cost brought about in change in amount produced
How does an economy's endowment of labor and capital effect how it produces goods?
cheaper labor means less capital, more capital means less labor
What is the production possibilities curve?
curve that shows all maximum amount of one good that can be produced given output of another good
What is the difference between a diagram and a picture?
diagram is a visual calculating device
What is altruism?
doing something because it is the right thing to do
Why does MB = MC at the market equilibrium?
everyone who wishes to bye gets and everything is sold
What is a sunk cost?
expenditure that cannot be recovered and should not be taken into account because it isn't a cost
What is the distinction between a movement along a supply or demand curve and a shift in a supply or demand curve.
if only price changes, there is a change. if ANYTHING else changes there is a shift
How is opportunity cost illustrated by the PPC?
illustrated by you give up something to obtain something else
What assumption does the PPC make about the marginal costs of both goods?
increasing marginal costs is a consequence of the PPC
How does the rational choice theory relate to scarcity?
individuals make prudent / logical desicions in their self interest. self interest leads to want
What is meant by economic activity?
it is the production of good
What is Sleeman's definition of opportunity cost?
net benefits = total benefits - total costs
Are stocks, bonds, and gold capital?
no, they are financial
How can we deduce whether the demand or supply curve caused a particular change in price and quantity transacted?
only one curve has shifted and that PX and QX have both decreased --> demand for X has fallen PX has decreased while QX has increased then supply of X --> increased.
What is the standard definition of opportunity cost?
opportunity cost of X is the value of the next most valuable alternative given up
Why is the supply curve is also the MC and WTA curve?
people wont demand more than minimum of what they would pay or want to pay
Why do economists assume that supply curves are positively sloped?
positive because of diminishing returns
Why is the demand curve is also a MB and WTP curve?
producers wont demand something they cant or wont sell
What does scarcity mean to you and me?
quality and quantity to access to goods and services
What is the distinction between nominal and real prices?
real price removes inflation from the nominal prices
How do economists define a supply curve?
shows for what price a profit-maximizing firm will be willing to supply at that price
How do economists define a demand curve?
shows the relationship between price and quantity demanded
What is Pareto optimum?
situation in which is it not possible to make someone better without someone being worse off
What is the standard definition of economics?
study of how to find scarce resources amoung alternative wants
What sorts of things do academic economists do?
teach, do research, engage in administration
Why does Sleemania only produce two goods or services?
there are only certain obtainable options of combinations of x and y
How is opportunity cost related to scarcity?
we sacrifice some opportunity in order to gain scarcity.
Why is the PPC not a straight line?
you cant have constant costs of production