QUIZ ECON1
Ceteris Paribus
"Everything else constant" or "all else equal"
Post Hoc Fallacy:
"Washing my car and it rain, (If Event B happens after event A, then Event A must have caused Event B)
Examples/definition of different types of resources:
(N) Natural Resources-resources are available in nature and can be used to produce goods and service. (L) Labor: The physical and mental effort people use to produce goods and services. (H) Human Capital: The knowledge and skills acquired by a weaker through education and experience. (K) Physical Capital: The stock of equipment, machines, structures, and infrastructure that is used to produce goods and services. Entrepreneurship: The effort used to coordinate all the factors of production -N,L,K and H- ultimately to do what?
Normal good,
A Decrease in income, Demand for Good declines
Which variable causes change (INCREASE/DECREASE) in Quantity Demanded reflecting a movement Versus
A decrease/fall in the price causes a change to increase in quantity demanded. A increase/rise in the prices causes a change to decrease in quantity demanded. (Increase in Quantity Demanded Movement Down Along Demand Curve). [Decrease in Quantity Demanded Movement Up Along the Demand Curve.]
Calculation of O/C using P.P.F.:
AMOUNT OF MACHINE GIVEN UP/GAIN IN FOOD
What do Points on:
Are Efficient (Fully Utilized, Fully Emloyed) and Attainable
what do points Inside
Are attainable and inefficient Not Fully Utilized, Not fully Employed Inefficient use of Labor Represents Unemployment Problem.
Outside the P.P.F. refer to
Are attainable with given resources and technology. Thru Economic Growth (Better Technology, Resources).
Production Possibility Frontier (P.P.F): Define
As the combination of Goods and Services that is produced with given Resources and Technology. IS A CURVE SHOWING THE MAXIMUM ATTAINABLE COMBINATIONS OF TWO GOODS THAT CAN BE PRODUCED WITH AVAILABLE RESOURCES AND CURRENT TECHNOLOGY.
Examples of countries with different economic systems
CENTRALLY PLANNED ECONOMIES LIKE THAT OF NORTH KOREA STILL HAS A COMPLETELY CENTRALLY PLANNED ECONOMY. ALL HIGH-INCOME DEMOCRACIES, INCLUDING THE UNITED STATES, CANADA, JAPAN,AND WESTERN EUROPE AS PURE MARKET ECONOMIES.
Which variables Change (INCREASE/DECREASE) in Supply/ reflecting a Shift
Changes in the prices of inputs, technology, the prices of related goods in production, the number of firms in a market, and expected future prices all cause the supply curve to shift. change in supply shift in the supply curve.
Variables affecting supply other than the price of the good.
Cost of production increases supply decrease- cost of production decrease supply-increase , Technology increases supply-increases Technology decrease supply-decrease, number of suppliers, taxes increase supply-decreases taxes decrease supply-increase, subsidy increase supply increase Subsidy decrease supply decrease etc.
What is economics?
Economics is social science in which individuals in a society decide how to allocate scarce resources given unlimited wants. IS THE STUDY OF THE CHOICES CONSUMERS, BUSINESS MANAGERS, AND GOVERNMENT OFFICIALS MAKE TO ATTAIN THEIR GOALS, GIVEN THEIR SCARCE RESOURCES
Why study Economics?
Economics is the study of how societies use scarce to produce valuable commodities and distribute them among different people. Indeed, economics is an important subject because of the fact of scarcity and the desire for efficiency.
What is an economic Model
Economists rely on economics theories or models, to analyze real-world issues.Economic models are simplified version of reality. One purpose of economic models is to make economic ideas sufficiently explicit and concrete so individuals, firms, or the government can use them to make decisions. Economists use economics models to answer questions. ARE SIMPLIFIED VERSIONS OF REALITY USED TO ANALYZE REAL-WORLD ECONOMIC SITUATIONS.
What is Demand? Is it same as need?
Experiment to derive the Demand curve; Quantity at different prices.
Different types of Economic Systems: Market
IN WHICH THE DECISIONS OF HOUSEHOLDS AND FIRMS INTERACTING IN MARKETS ALLOCATE ECONOMIC RESOURCES, IS A GROUP OF BUYER AND SELLERS OF A GOOD OR SERVICE AND THE INSTITUTION OR ARRANGEMENT BY WHICH THEY COME TOGETHER TO TRADE.
Different types of Economic Systems Command
IN WHICH THE GOVERNMENT DECIDES HOW ECONOMIC RESOURCES WILL BE ALLOCATED
Examples of Positive:
IS CONCERNED WITH WHAT IS; ECONOMICS IS ABOUT POSITIVE ANALYSIS, WHICH MEASURES THE COST AND BENEFITS OF DIFFERENT COURSES OF ACTION. A Fact /Theory
Normative statements:
IS CONCERNED WITH WHAT OUGHT TO BE.Opinion "should,"
Different types of Economic Systems Mixed
IS STILL PRIMARILY A MARKET ECONOMY BECAUSE MOST ECONOMIC DECISIONS RESULT THE INTERACTION OF BUYERS AND SELLERS IN MARKETS. UNITED STATES, CANADA, JAPAN,AND WESTERN EUROPE AS PURE MARKET ECONOMIES
Derivation of Demand Curve and Ceteris paribus assumption (When we derive demand curve, which variables are kept constant)
If a variable is visible on the axis changes e.g. Price on Demand Curve) Then there is a movement on the graph (E.G. D1 curve) This movement is referred to as change in Quantity Demanded. HOLDING EVERYTHING ELSE, CONSTANT WHEN THE PRICE OF A PRODUCT FALLS, THE QUANTITY DEMANDED OF THE PRODUCT WILL INCREASE, AND WHEN THE PRICE OF A PRODUCT RISES, THE QUANTITY DEMANDED OF THE PRODUCT WILL DECREASE.(economists refer to the necessity of holding all variables other than price constant in constructing a demand curve.
Which variables Change (INCREASE/DECREASE) in Demand reflecting a Shift of the Demand curve
If a variable that is not visible on the Axis (E.G. 1-4) changes; then there is a change in demand A shift of the Demand Curve. Factors influencing demand are: change in Tastes and Preferences, Households Income and Wealth, Prices of related goods, Role of expectations; shift the Demand curve versus movement along the demand curve.A Increase in demand will reflect a shift to the Right. A decrease in demand will reflect a shift to the Left. ex.(INCOME, PRICES OF RELATED GOODS, TASTES, POPULATION AND DEMOGRAPHICS, EXPECTED FUTURE PRICES).
Fallacy of composition:
If it is good for i individual, it must be good for the society as a whole. "Something for future cutting back and if everybody started to save it causes a recession."
Different Shapes of the P.P.F.: Reasons for Straight Line
Implies consistent O/C. Resources are perfect substitutes across all uses (Equality Suited Across All Uses).
Versus Curved PPF
Implies increasing O/C. Resources are imperfect substitutes across all uses (Not equally suited across all uses)
Population
Increase Shift to the Right
Inferior good,
Increase in income, Demand for Good declines
Can PPF shift inward
Inward shift due to wars/Natural Disasters.
What are the important characteristics of Market economic systems
MARKET ECONOMIES RELY PRIMARILY ON PRIVATELY OWNED FIRMS TO PRODUCE GOODS AND SERVICES AND TO DECIDE HOW TO PRODUCE THEM. MARKETS, RATHER THAN THE GOVERNMENT, DETERMINE WHO RECEIVES THE GOODS AND SERVICES PRODUCED. IN A MARKET ECONOMY, FIRMS MUST PRODUCE GOODS AND SERVICES THAT MEET THE WANTS OF CONSUMERS, OR THE FIRMS WILL GO OUT OF BUSINESS. "WHO RECEIVES THE GOODS AND SERVICES PRODUCED?" WITH THE ANSWER "THOSE WHO ARE MOST WILLING AND ABLE TO BUY THEM."
What are examples of Normal good, Inferior good, Substitutes, complements?
Normal good when the demand for the good increase following a rise in income and decrease following a fall in income. Inferior good when the demand for it decrease following a rise in income and increases following a fall in income. For instance, as your income rises, you might buy fewer cans of tuna packages of instant noodles and buy more salmon or whole grain pasta;canned tuna and instant noodles would be examples of inferior goods-not because they are low quality but because you buy less of them as your income increases. Substitutes goods and services that can be used for the same purpose;Two goods for which an increase in the price of one good increases the demand for the other good e.g.(PIZZA&BURGERS,IPHONE&SAMSUNG). Complements Good and services that are used together-such as hot dogs and hot dog buns. Two goods for which a decrease in the price of one good increases the demand for the other good (SOCKS&SHOES,MILK&CEARAL,IPHONE&AIRPODS
Do Trade offs exist only in Economics?
PRODUCING MORE OF ONE GOOD OR SERVICE MEANS PRODUCING LESS NUMBER OF ANOTHER GOOD OR SERVICE. THE BEST MEASURE OF THE COST PRODUCING A GOOD OR SERVICE IS THE VALUE OF WHAT HAS TO BE GIVEN UP
Complements
Price of A Related Good Increases, Demand For A Good Declines.
Substitutes,
Price of a Related Good Increases, Demanded or A Good increases
Derivation of Supply Curve and Ceteris paribus assumption (When we derive supply curve, which variables are kept constant)
Relationship between price and quantity supplied by a single firm, all else equal.
Rationality
Respond to the information and make decisions by comparing benefit and cost so as to achieve the best possible outcome for one self/spouse/partner etc. RATIONAL INDIVIDUAL WEIGH THE BENEFITS AND COST OF EACH ACTION, AND THEY CHOOSE AN ACTION ONLY IF THE BENEFITS OUTWEIGH THE COSTS. For example if apple charges a price of $639 for its new iPHONE, ECONOMISTS ASSUME THAT THE MANAGERS AT APPLE HAVE ESTIMATED THAT THIS PRICE WILL EARN THE COMPANY THE MOST PROFIT.
Circular Flow
SHOWS THAT IN FACTOR MARKETS, HOUSEHOLDS SUPPLY LABOR AND OTHER FACTORS OF PRODUCTION IN EXCHANGE FOR WAGES AND OTHER PAYMENTS FROM FIRMS, In product markets, households use the payments they earn in factor markets to purchase the goods and services supplied by firms. Firms produce these goods and services using the factors of production supplied by households.
Concept of Scarcity
The condition that exist when there are not enough resources to satisfy all the wants of individuals or society; WE MUST MAKE CHOICES BECAUSE IN THE WORLD WE LIVE IN, WHICH MEANS THAT ALTHOUGH OUR WANTS ARE UNLIMITED, THE RESOURCES AVAILABLE TO FULFILL THOSE WANTS ARE LIMITED; The concept of opportunity cost is very important in economics and applies to individuals,fims, and society as a whole.
Choice
The decisions individuals and society make about the use of scarce resources.,
Law of Demand
There is a negative relationship between price and quantity demanded, ceteris Paribus. THE INVERSE RELATIONSHIP BETWEEN THE PRICE OF A PRODUCT AND THE QUANTITY OF THE PRODUCT DEMANDED
Examples of Opportunity Cost
Time, money) The next best thing in 100 hrs compare with activity. ex: you spend time (money) going to movie, you cannot spend that time at home reading a book, and you can't spend the money on something else. FOR INTSANCE, SUPPOSE THAT YOU EARN A SALARY OF $100,000 PER YEAR WORKING AS A MANAGER FOR FORD. IN THIS CASE, THE OPPORTUNITY COST OF THE LABOR YOU SUPPLY TO YOUR OWN FIRM IS THE $100,000 YOU GIVE UP BY NOT WORKING FOR FORD, EVEN IF YOU DO NOT EXPLICITLY PAY YOURSELF A SALARY.
Law of Supply:
We expect most supply curves to be upward sloping; which states that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in quantity supplied.
How do Excess Demand and Excess Supply emerge?
You get Excess Demand when the price is below the equilibrium. Excess supply happen when the price is above equilibrium.
How does the market reach equilibrium in presence of shortage (excess demand) and surplus (excess supply)
market reach equilibrium in presence of shortage (excess demand) price will rise. Market reach equilibrium in the presence of surplus (excess supply) prices will fall.
Correlation
necessarily implies causation (False because it could be the influence of another variable that might be responsible for the correlation.)
What is empirical methodology
real world
Causation
the act or process of causing something to happen or exist.
Opportunity cost
the next highest valued alternative that us given uop when a choice is made. OF ANY ACTIVITY- SUCH AS PRODUCING A GOOD OR SERVICE-IS THE HIGHEST -VALUED ALTERNATIVE THAT MUST BE GIVEN UP TO ENGAGE IN THAT ACTIVITY.
Which variable causes change (INCREASE/DECREASE) in Quantity supplied reflecting a movement Versus
the quantity of a product supplied increases when the price rises and decreases when the price falls. change in quantity supplied movement in supply curve.