Econ 102

Marginal Product of Labor (MPL) ?

-The change in total output that occurs when the firm hires an additional unit of labor

Consumer Surplus

-The difference between what a consumer is willing to pay for a produce, and what they actually have to pay for it (price).

Producer Surplus

-The difference between what a firm gets from selling a product (price), and the minimum they would be willing to accept to produce the product. -It is the area bellow the price and and above the supply curve.

Shortage

-The price is too high -Od>Qs -Occurs at any price below the equilibrium -Price will rise over time toward equilibrium

Surplus

-The price is too low -Qs>Qd -Occurs at any price above equilibrium -Price will fail over time toward equilibrium

Microeconomics

-The study of decision making undertaken by individual economic agents. (Households, firms, government)

Macroeconomics

-The study of the economy as a whole -Main topics: National income, unemployment, inflation, output, and growth

Opportunity Cost

-The value of the best alternative that we give up or forgo when we make an economic decision -any decision you make is costly

Market Equilibrium

-Where quantity demand equals quantity supplied -Can be shown graphically or algebraically (Qd=Qs)

Things that cause a change in supply

1) A change in the cost of production -An increase in the cost of production causes a decrease in supply, and vice-versa, ceteris paribus. 2) A change in the number of firms in the market -The more firms the more, the less firms the less 3) Government Policies -A tax on firms will decrease supply 4) Weather 5) Natural Disasters -ex: $10 water during a hurricane.

Determinants of E

1) Ability of Substitutes -Other things equal, the more substitutes there are, the more elastic the demand is. 2) The proportion of a consumers budget that is spent on the good, other things equal, the larger the proportion of a consumers budget, the more elastic the demand is. 3)The length of time consumers have to adjust to a price change, the more elastic the demand, other things equal.

Quantity Supply (Qs)

The amount of a good or service that firms are willing to produce an offer for sale during a given period of time, at a given price.

Categories of E

|E|=0 ----> Perfectly Inelastic 0<|E|<1 -------> Inelastic |E|=1 --------> Unitary Elastic 1<|E|< infinity -------> Elastic |E|= infinity

Elasticity Formula

(1/slope)(P/Q)

Scarcity

- A situation in which the ingratiate for producing the things that people desire are insufficient to satisfy all wants of a zero price. -"limited resources"

Relationship between Marginal and Average Cost

- If marginal> average, the average is increasing -If the marginal <average the average is decreasing

Law of Demand

- Inverse relation between the price and Qd -There is a negative or an inverse relationship between price and Qd, ceteris paribus.

Main Points of the PPC

- It is a downward sloping (opportunity cost) -It is bowed out (law of increasing opportunity cost) -Points Inside (unemployment, inefficient use of resources) -Economic Growth (shifting the PPC)

Quantity Demand (Qd)

- The amount of a good or service that a person would buy during a given period of time of a given price.

Marginal Rate of Transformation (MRT)

- The rate of which a country can trade one good for another. It is the amount of the good on the vertical axis that must be given up in order to obtain an extra unit of the good on the horizontal axis. It is the slope of the PPC.

Change in Qd vs Change in Demand

-A change in Qd: Is represented by a movement along a given demand curve. A change in Qd occurs because of a change in price. -A Change in Demand: A shift of the demand curve. It is caused by a change in something other than price. (An increase in demand is a shift to the right, and a decrease in demand is a shift to the left)

Production Possibilities Curve (PPC)

-A graph representing all possible combinations of goods and services that can be produced with a given technology and a fixed amount of resources in a given period of time

Shortrun

-A period of time in which at least one input is fixed *Capital is typically the input that is fixed in the shortrun

Law of Increasing Opportunity Cost

-As we produce more and more of a good, the opportunity cost of producing another unit of the good increases. This is because resources are not equally well suited to the production of all goods. So as we produce more and more of a good, we have to use resources which are less less well suited to producing that good. -We have to use more resources so we give up more of other goods

Types of Economies

-Command Economy: A central authority determines the answers to the three basic questions -Free-Market Economy: Markets determine the answers to the three basic questions -Mixed Economy- Elements of both economies (command+free market)

Production

-Firms are the agents in the economy that produce goods and services

Other Elasticities

-Income Elasticity of Demand: (% change in Od)/(% change in income) >0: Normal Good <0: Inferior Good -Cross-Price Elasticity of Demand (% change in Qd)/(% change in P) >0: substitutes <0: complements

Shift (outward) of the PPC can be caused by...

-Increased resources -Increased technology

Types of Resources

-Land: Anything provided by nature (ex:wind, water) -Labor: The physical and mental efforts of human beings (ex: anything humans do) -Capital: Goods that are produced which are in turn used to produce other goods and services (ex: physical and human capital, entrepreneurship)

Scientific Method

-Make observations -Use inductive reasoning to form hypothesis and theories -Test the hypothesis and the theories -Modify the hypothesis and theories

Two ways to calculate elasticity

-Midpoint Method= Method of calculations E (to be used when going from one point on the demand curve to another) E= (Q2-Q1)/(Q1+Q2)/(P2-P1)/(P1+P2) -Point Slope Method= E= (1/Slope)(P/Q)

Producing inside the PPL can be because....

-Not using all of the resources -Not using resources efficiently

Comparative Advantage

-One country has a comparative advantage in the production of a good over another country if it can produce a given amount of that good at a lower opportunity cost (in terms of other goods) than the other country can.

Absolute Advantage

-One country has an absolute advantage in the production of a good over another country if it can produce a given amount of good using fewer resources than the other country can.

Assumptions

-People are rational (people don't intentionally do things that make them worse off) -ex ante (before) -ex post (after -Ceteris peribus- "all other things equal"

Positive vs Normative Economics

-Positive Economics: makes statements about what is or what will be. Position statements are specific predictions and are testable. (PREDICTIONS) -Normative Economics: Makes statements about what we should do or what ought to be. "Should ought to"

Production Function

-Shows the maximum amount of of output that can be produced from a given amount of input (resources)

Things that cause a change in demand...

1) Change in preferences 2) Change in Income -Normal Good: an increase in income causes an increase in demand, and vice versa. - Inferior Good: an increase in income causes a decrease in demand, and vice versa 3)Change in the price of related goods -Substitutes: Two goods are substitutes if an increase in the price of one good causes an increase in demand for the other good (oil) -Complements: Two goods are compliments if an increase in the price of one good causes a decrease in the demand for another good. 4) Change in expectations (prices, income) 5) Change in the number of consumers in the market 6) Government policies: a tax on consumers will decrease demand 7)Advertising

Short Run Cost of Production: 1) Fixed Costs 2) Variable Costs 3) Total Cost 4) Average Fixed Costs 5) Average Variable Cost 6) Average Total Cost 7) Marginal Cost

1) FC= Costs that do not vary with output 2) VC= Costs that do not vary with output total cost (TC) 3) TC= FC+ VC 4) AFC= (FC)/(Q) 5) AVC= (VC)/(Q) 6) ATC= (TC)/(C) OR AFC+AVC 7) MC= The change in total cost when output changes by one unit... MC= (Change in Total Cost)/(Change in Q)

Applications with Elasticity: 1) Inelastic Demand: 2) Elastic Demand: Elasticity is maximized when |E|=1

1) Inelastic Demand: When P increases, TR increases When P decreases TR decreases 2) Elastic Demand: When P increases, TR decreases When P decreases, TR increases

Price Ceilings

A maximum price set by the govt that sellers can charge for a product (below equilibrium- shortage, above equilibrium= no impact)

Price Floor

A minimum price set by the government that buyers have to pay for a good or service (bellow equilibrium- no impact, above equilibrium- surplus)

Change is Qs

A movement along a given supply curve. It happens because of a change in the price

Change in Supply

A shift of the supply curve. It is caused by a change in something other than the price. (A decrease in supply=shift to the left, Increase in supply=shift right)

In order for a firm to maximize total revenue, the firm should change the price where...

E=-1

Economics

The study of how people allocate their limited resources to satisfy their unlimited wants

Law of Supply

There is a positive, or direct relationship between the price of Os, ceteris paribus