Exam 1 Micro

A farmer wishes to plow a second acre of land for his potato business. The opportunity cost to increase potato production from 1 to 2 acres is constant. True False

False, because although the size doesn't change, you don't know how much energy or cost he is putting into his land. Those are variables that change and can cause the land to change.

Opportunity cost is objective; therefore, its value does not change as circumstances change. True False

False, it is subjective and objective causing it to change depending on circumstance.

comparative advantage

Having smaller opportunity cost in producing a good than opposition.

Why engage in trade

- it is mutually beneficial for both parties - its a way to receive items individuals don't have direct access to - creates economies of scale: cost advantages gained from efficient production (maximizing production)

Shift of Supply

- technology - #of sellers - price of inputs - price of alternative goods - sellers expectations

Specializaiton benefits

-higher technological change -lower costs - lower prices - happier consumers. - more spending causing efficient market

Foundational assumptions

1.) ceteris paribus (word for all things being constant) 2.) People make rational decisions to maximize their happiness. (Marginal Benefits>Marginal Cost) 3.) Firms make decisions to maximize profit. 4.) People/animals respond to incentives

Benefits of PPF

Helps us make business decisions on how to allocate our goods to the fullest potential: - shows opportunity cost of making a decision - helps producers in understand how to maximize production.

4 types of resources/definitions/examples

Land: area of land that can be used for production. Ex: Rent Labor: people working for money Capital: investment into the companies future. Example: investing money and receiving small interest over time or buying a machine to produce goods Entrepreneurial ability: the people who have the ideas/ invention example: Steve Jobs is an entrepreneur and had the idea to create the iPhone

Linear PPF vs. Bow out PPF

Linear PPF: slope/opportunity cost will remain constant non linear PPF: slope/opportunity cost will increase

unreachable point PPF/ where its located?

Located outside of PPF line, and is unreachable because they don't have enough resources to produce up to that point. The PPF line shows the maximum amount of goods that can be produced. /so anything above it is unattainable unless you have more resources to produce more goods.

Market

a place where buyers and sellers come together to engage in trade

Bowed out PPF

has different slopes and shows the different possible amount that can be used between two goods. Evaluates quantity side of production

Absolute advantage

having an advantage of making more quantity of a good than opposition.

Inefficient point on PPF/ where its located?

is a point inside the curve, are capable of producing more goods than they are.

efficient point / where its located

located on PPF Curve (line), its efficient point because that curve displays the maximum amount of products an individual can produce. If its on the PPF curve then its producing the maximum amount of goods there capable of.

Law of demand

says if everything is equal/constant (Ceteris Paribus) then Price and Quantity demanded have a inverse relationship

Consumers Production frontier (CPF)

shows the different amounts of goods that can be produced after trade.

What is the relationship between slope of the PPF and the opportunity cost?

slope of the PPF will always have the exact value of the opportunity cost for a good.

Different Types of Economies/ definitions

- Free Market Economy: the idea that consumers and producers determine the consumers and producers. With NO gov. involvement - Mixed Economy: the idea that the consumers and producers are able to control the market's but the government is able to create regulations and laws influencing business activity - Planned (command) Economy: The government controls the market by determining what goods and services are produced and at what price.

What happens when you specialize in a good?

- SOMETIMES you produce less total goods than you could produce if you combined both goods. - You have a higher opportunity cost

Shift of Demand

- income - taste/preference - price of complements/substitutes goods - expectations - # of consumers

Attending college can be viewed as a form of A.) Investment in which cost are inherited today and benefits are received in the future. B.) Investment in which benefits are received today and cost are inherited in the future. C.) Consumption, because learning is an enjoyable activity D.) Leisure, because learning is an enjoyable activity E.) Saving for the future.

A.) Investment in which cost are inherited today and benefits are received in the future.

why is Economics called science of choice

Because economics is the study of decision making in a market with limited resources. Limited resources cause limited choices

Suppose you have a choice of working full-time during the summer or going full-time to summer school. Summer tuition and books are $2,200. If you worked, you could make $7,000. Your rent is $1,000 for the summer, regardless of your choice. The opportunity cost of going to summer school is, therefore, A.) $2,200 B.) $7,000 C.) $8,000 D.) $9,200 E.) $10,200

D.) $9,200 $2,200 + $7,000= $9,200

The opportunity cost of going to college is best measured by the A.) Cost of room and board B.) Cost of tuition C.) Cost of room and board, plus tuition D.) Income forgone by not working, plus tuition E.) Income forgone by not working, pus tuition and room and board.

D.) Income forgone by not working, plus tuition

Difference between Microeconomics and Macroeconomics

Microeconomics: evaluates economics on a specific scale and focuses on smaller entities like businesses, households, and individuals. - Ex: deals with issues like Pricing decisions, Hiring decisions, and production efficiencies Microeconomics: evaluates economics in a broader sense and focuses on the Nations economy overall. - Ex: deals with issues like Countries Economic Growth, inflation, employment, and Gov policies.

Is the Free Market Egalitarian? (belief all people are equal and deserve equal rights

No, because free market is a competitive market with scarce resources so everyone is utilizing their different skills to receive these resources and will receive different amounts. Ex: different incomes

Normal vs Inferior Good

Normal good: if their is an increase in consumers income then their is a increase in quantity demanded. Ex: luxury goods like lambos because if you have an increase in income then you can afford to upgrade in your social status. Inferior good: if there's a increase in consumer income then there's a decrease in quantity demanded. Examples:

Pros/Cons of a Mixed Economy

Pros: - Gives consumers protection rights/labor rights - Stops monopolies from forming - Invisible hand theory: incentivizes the market to have/produce higher quality ideas/ inventions - Promotes competition - Gives the incentive to work harder Cons: - Limits the people's freedom of choice - Government's problems become our own problems

Pros/Cons Planned (Command) Economy

Pros: - Short-term it fills the needs of the market - Creates jobs Cons: - Not a sustainable Long term plan - Limits the people's freedom of choice - Goods produced might not match Consumers demand - No motivation to work hard causing a decrease in innovation - Harder to gather information about economies needs - Governments problems become our own problems - More shortages and Surpluses are likely to occur

Pros/Cons of a Free market Economy

Pros: - invisible hand theory will cause an increase in the innovation of inventions/ideas. - Gives people an incentive to work harder - Promotes competition - allows people to have freedom of choice. Cons: - No consumer protecion rights/labor rights - Monopolies form

Resources

Resources are the necessity of the economy and a source of supply.

Production Possibility Frontier (PPF):

a graph that displays the different possible amounts that the two separate goods could produce

Opportunity Cost

What you are giving up to receive something Ex: I give up using my time to watch TV in order to focus on studying for my important Micro test

Market Failure (not on 1st exam)

When an individual's (Producer/entrepreneur) pursuit of self interest negatively impacts the market. Ex: Martin Shrekeli Price gouging drugs

Economic Growth (Not on first Exam)

When the economy is fluctuating and causing increase in producing and consuming goods. http://www.saplinglearning.com/ibiscms/course/view.php?id=96439 Example: Technology advancements

Recession (not on 1st Exam)

a down period in the economy. Example: companies firing workers because Recession has caused market inactivity not allowing the companies enough funds to pay those workers

Why go to College

direction correlation that that the higher the education the higher paying jobs it will lead to.

Why trade works

division of labor: production process in which a worker or group of workers is assigned a specialized task in order to increase efficiency. Specialization: putting all effort into the production of one good

Daily Cost-Benefit Analysis/ how do we measure it

evaluating the pros and cons of a decision and using marginal decision making to calculate the length of making a decision.

Broken Window Fallacy

the idea that someone breaks a mirror. It will boast economic stimulation because he has to go by a new window but it is bad because it is a decrease in wealth. He could have used that money to buy something else that he want.

Invsible Hand Theory

theory by Adam Smith's Wealth of Nations that said we need to have a free market where the consumer and producers determine the good. The entrepreneurs (producers) will indirectly benefit the economy by pursing their self interest.

When would trade not work

trade doesnt work when the world price isnt between the two countries opportunity cost

How does the Invisible Hand theory benefits the economy

will increase the quality of life by having entrepreneurs (producers) compete with each other by creating better ideas and innovate inventions.

Is the Free Market Efficient?

yes, because your equilibrium price equals demand (Marginal benefits) and supply (Marginal cost)