Micro 1

inferior goods

1. : goods that you buy less of as your income rises (demand decreases as your income rises) Ex. Instant noodles, public transport, cheap groceries,

increase

An __________ in demand shifts your demand curve to the right (you want to buy more at each and every price.

ignore

Since sunk costs can't be reversed, you'll incur those costs under either scenario, which means that they are not opportunity costs. Thus, you should _____ sunk costs.

Framing

Suppose a shirt is on sale. The price tag shows both the sale price and the original price. This makes you feel like you are saving money when purchasing

A market is defined as

any place where buyer and sellers come together Examples: a flea market, target, amazon, garage

Rational Rule for Buyers

buy more of an item if its marginal benefit is greater than (or equal to) the price

Law of demand

consumers buy more of a good when its price decreases and less when its price increases

Variable cost

costs that vary with the quantity of output. If Exxon expands their production, it will have to buy more crude oil, more chemical additives, and pay for its workers. These costs are opportunity costs ex. attending college vs not attending, The opportunity of college is not just fore gone income but also tuition and fee. Because you wouldn't have to pay if you don't go to college

Individual supply curve

is a graph of the quantity that a business plans to sell at each price, holding other factors constant (ceteris paribus). It summarizes a business's selling plans.

Market demand curve

is a graph plotting the total quantity demanded by the entire market at each price.

Demand Schedule

is a table that indicates the quantity of a good or service that would be demanded at each price.

Supply schedule

is a table that indicates the quantity of a good that would be supplied at each price.

Market Power

is the extent to which a seller can charge a higher price without losing too many sales to their competing businesses

shifts ppf

productivity gains

horizontal axis

quantity demanded is on the....

Market demand

the sum of all the individual demands for a particular good or service

economic surplus

the sum of consumer surplus and producer surplus

oppurtunity cost

the true cost of something is the next-best alternative that you must give up in order to get it

Market supply curve is ________ slopping

upward

Marginal cost curve slopes

upwards, Meaning that mc rises as you keep producing a good. This is due to diminishing marginal product. Expanding your production requires Increasing use of inputs like labor

Marginal costs are your additional

variable costs

· ceteris paribus assumption.

"Holding other factors constant"

Willingness to Pay (WTP)

"what is the most that you would be willing to pay in order to obtain a particular benefit or in order avoid a particular cost."

Complements

(1) goods that "go well together" a decrease in the price of one good results in an increase in demand for another good Ex. Pizza & coke: if the price of pizza decrease, people buy more pizza which makes demand for coke go up Ex) cars and gas, smart phones and screen protectors, paint and paint brush

substitutes

(1) goods that serve as replacements for one another. An increase in the price of one good results in an increase in the demand for its substitute The more closely related they are, the stronger the demand curve shifts in case of a price change of the related good Ex. Pepsi and diet coke: what happens to the demand for Pepsi if the price of coke increases? The price of coke goes up so, the demand for Pepsi goes up. Vice versa

Quantity demanded

(Q sub D) the amount you are willing to buy at each price

Shift in the supply curve

-An increase in supply means something has changed that causes you (seller) to sell/produce more at every price -An increase in supply shifts the supply curve to the right -A decrease in supply shifts the supply curve to the left

Four types of Interdependencies:

1. Dependencies between each of your individual choices 2. Dependencies between people or businesses in the same market 3. Dependencies between markets 4. Dependencies through time

Factors that shift the demand curve

1. Income (a change in income changes the demand ) 2. Preference (changes in your preference or tastes cause demand to change) 3. Price of related goods: there are 2 types of related good, which shift the demand curve in opposite directions: substitutes and complements 4. Expectations: consumers expectations of future prices (or any other factors) can change your todays demand. If consumers expect prices to increase in the near future, this will increase your demand today. ( todays demand curve shifts to the right)

Key information for supply curve

1. Note that supply curve summarizes how much a business will change the quantity it supplies if the price changes. This is why the price change causes a movement along the supply curve, not a shift of supply curve 2. Individual supply curve is upward slopping, indicating a positive relationship between p and q supplied. Law of supply explains supply curve sloped upward, it says, ceteris paribus, the higher the price of a good, the higher is the quantity suppled. In other words, a seller would rather receive a higher price than a lower price

Prices of related outputs

1. Substitutions in production - allows a business to have alternative uses of it resources by manufacturing other products using the same inputs 2. Complements in production - "goods that are produced together" (by product)

Estimating market demand

1. Survey a sample of individuals that represent the market by asking each person the quantity they will buy at each price 2. Add up quantity demanded by survey respondents for each price 3. Scale up quantity demand by survey respondents so that they represent the market. 4. Plot the total quantity demanded by the market at each price, yielding the demand curve.

Fixed costs

1. costs that do not vary when you change the quantity of output you produce. Ex rent, equipment, land Firms have to pay these fixed costs whether or not they expand their production

Suppose you and your 99 classmates all have identical marginal benefits (MB) for coffee: the marginal benefit (MB) of the first cup is $4, of the second is $3, and of the third is $2. If the price of coffee is $3, what is the total quantity demanded in the market?

200 cups, individuals would buy 2 cups because after 2 cups, the marginals benefit is less than the cost then scale up for 100 customers.

Input prices

A change in price of input changes the marginal cost Lowering the prices lead to lower marginal costs, which in turn increase the quantity a business is willing to supply at any given price. Thus supply curve shifts to right Higher input prices lead to higher marginal costs, which makes supply go down, shifting supply curve to the left

Movement along the supply curve

A change in prices causes a movement along the supply curve, yielding a change in the quantity supplied. The reason that the supply curve does not shift following a price change is because the supply curve already summarizes how much a business will change the quantity it supplies if the price changes

downward, diminishing

Demand curve slopes ______ because of ___________ marginal benefit

Cost-Benefit Principle

Evaluate the full set of costs and benefits (both financial and non-financial) of any choice; and only pursue the choice if the benefits are at least as large as the costs.

Expectations

If producers expect the price to increase in the future, this will decrease their supply today.

down, up

If the Price goes ______ and quantity demanded goes ____ (law of demand) it can be described by a movement along the demand curve from point a to b

Benefits are greater than or equal to cost

In order to make a good decision, Cost-Benefit Principle says that only pursue the choice if the _________________, and it says ask yourself about your WTP before you look at the price tag.

Marginal Principle

Increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost.

Four factors that shift the supply curve:

Input prices, productivity or technology, prices of related outputs, and expectations

Perfect competition

Markets in which (1) all firms sell on identical good and (2) there are many buyers and sellers, each of whom is small relative to the size of the market.

opportunity cost ----

Moving along your PPF reveals

Productivity and technology

New technologies lower the marginal costs of producers... as technology advances and productivity increases, production costs decrease, which causes firms to supply more at every price

Market Supply

The total amount of an item that produces in a market are panning to sell at each price

No

Yesterday you bought a Halloween costume for $35 to wear to a friend's Halloween party. But today you are feeling sick, and as you are getting dressed to go to the party, you realize that you won't enjoy it. Do you head to the party?

Interdependence Principle

Your best choice depends on your other choices, the choices others make, developments in other markets, and expectations about the future. When any of these factors changes, your best choice might change.

Sunk cost

a cost that has been incurred and cannot be reversed. It should not impact your decision.

Market supply curve

a graph plotting the total quantity of an item supplied by the entire market at each price.

Oligopoly

a market with only a handful of large sellers. Your best choice depends on how your rivals will respond and their best choices depends on how you will counter.

A market is in _____________ where the supply meets the demand. quantity supplied = quantity demanded

equilibrium

There is one price at which quantity supplied = quantity demanded. The resulting quantity is the equilibrium quantity (Q*)

equilibrium price (P*)

Marginal Benefit (MB)

extra benefit you get from one more of something.

Marginal Cost (MC)

extra cost incurred by that extra unit of something.

Marginal product of labor:

extra output you can get from hiring one more worker.

Marginal product of that input:

extra you get from having one more unit of input. If input is labor

Marginal costs do not include

fixed costs

Normal goods

goods that you buy more of as your income rises. (demand increases as income rises)

We start by examining an individual business. To estimate an individual supply for something, we ask?

how many / much of something do you expect to sell at each price

Rational Rule

if something is worth doing, keep doing it until the MB = MC (or stop before MC becomes greater than MB)

Market Economies

operate with every individual making their own production and consumption decisions. Examples: North America, Europe, South Korea

individual demand curve

plots demand schedule on a graph showing the quantity of an item that someone plans to buy at each price.

vertical axis

price is on the....

Diminishing marginal benefit (MB)

says that MB will eventually begin to decrease as you take an action. *each additional item yields a smaller MB than the previous one.

Rational rule for seller

sell one more if P is greater than or equal to the MC

Production Possibilities Frontier (PPF)

shows Different sets of outputs that are attainable with your scarce resources

fixed costs costs do not vary with output and are

sunk costs

Quantity Supplied

the amount of a good that a seller is willing to sell at each price.

shortage

when the quantity demanded exceeds the quantity supplied, This occurs when the price is below equilibrium. -As the price rises, the horizontal gap between quantity demanded and quantity supplied narrows, and the shortage is reduced. Price will continue to rise until the gap is eliminated. -*shortage puts upward pressure on the price

Surplus

when the quantity supplied exceeds the quantity demanded. This occurs when the price is above its equilibrium. Surplus puts downward pressure on the market

efficient

when using all available resources given to you.