Intro to Microeconomics Study Guide Essay

Economics is the study of allocation of scarce options 1) Chapter One The Principles of Micro economic science a. Four resources Land, Labor, great(p) (machinery), Entrepreneurship (human capital) b. Principle 1 People face trade-offs, government also faces them, the main genius the gov. faces is efficiency vs. justness i. Efficiency is when everyone who makes the most, keeps the most money ii. Equity would be if everyone was taxed the same c. Principle 2 The cost of something is what you fail up iii.Opportunity cost = the measurement of trade-off you give up something you tummy have later, to she-bop something now d. Principle 3 Rational people think at the margin iv. They do whats best for them and maximize benefits v. Think at the margin = thinking about the NEXT one vi. borderline=small incremental changes e. Principle 4 People respond to incentives vii. Prices are major incentives viii. Taxes/tax identification f. Principle 5 Trade fucking make everyone better off ix. Everybody female genitalia specialize x. more variety of goods xi.Doesnt al courses make everyone better off ex Jamaica, NAFTA xii. One partner can be strong and over power others g. Principle 6 Markets are a good way to organize economic formivity xiii. People are guided by self-interest xiv. Markets are where consumers and suppliers find to perplexher and trade-off occurs h. Principle 7 The government can improve market place outcomes xv. Main act of government enforce property rights xvi. disposal can step in if theres market failureexternalities occur (taxes can be enforced for cigarettes), people who arent in the market are ffected xvii.Government can step in when theres market power xviii. Monopoly/oligopoly-government might step in 2) Chapter 2 What does it mean to think like an economist? i. Objectively j. Scientific method xix. Observe, hypothesis, identify variables, store data, test hypothesis, draw a conclusion k. Difficult to conduct a controlled experiment in economics l. Circular Flow Diagram = money and goods and services flow from input marketoutput market xx.Flow of bills Market for factors of production (input market) households get income spending on markets of goods and services (output market) which generates revenue for firmswhich pay wages and take on for factors of production xxi. Flow of goods and services Market for factors of production (input market) bribes factors (land, labor, capital and entrepreneurship)firms which sell goods and servicesto market of gas and serviceswhich buy goods and services from households, which sell factors to market for factors of production xxii.This marketing is missing government, trade, savings, black market activities and charity tempt/non-profits m. Production Possibilities Frontier how much a country can produce xxiii. Assumptions one country, two goods, resource = labor xxiv. Bowed out PPF due to different resources (L) xxv. Opportunity cost growings with bowed out PPF because it ta kes more and more to make one more of the good xxvi. Any points along the PPF are efficient, outside the flex are not feasible and inside the curve is inefficient xxvii. Efficiency means we maximize our resources xxviii.To get more of the good, you have to give up some of the other good xxix. More resources for both goods increase entire curve shifts out xxx. More resources for just one good increase curve shifts on one side only xxxi. If the PPF is straight, its because there are multiple resources for both goods xxxii. Just stating a fact = positive statement and normative statement = subjective 3) Chapter 3 Absolute and Comparative payoff n. Absolute advantage is when you make something more efficiently than someone else, so that less(prenominal) is required, which means less opportunity cost xxxiii.Assumptions 2 people who can make goods, 2 goods that both people neediness to consumer, time is the only input, both people want to consume both goods and theyll only trade if they can produce one good xxxiv. Each person works 8 hrs. per day o. Farmer can produce 8 donuts and 32 cups of deep brown Baker can produce 24 donuts and 48 cups of burnt umber xxxv. The bread maker has absolute advantage because he can make more donuts and more coffee than the granger in 8 hrs. xxxvi. Graphing use points (8, 0) and (0, 32) for farmers PPF and CPF (consumption possibilities frontier).Use points (24, 0) and (0, 48) for bakers PPF and CPF p. Trade lot Farmer impart make only coffee (which is all 32 cups of coffee in 8 hrs. ), baker offers farmer 5 donuts for 15 cups of coffee xxxvii. Trade increases variety xxxviii. Farmer ends up with +5 donuts and 15 cups coffee = 5 donuts and 17 cups coffee q. Comparative advantage is when you have a pull down opportunity cost xxxix. The opportunity cost of one donut for the farmer is 4 cups of coffee and for the baker is 2 cups of coffeebaker is comparative advantage in donuts because of land opportunity cost xl.The opportuni ty cost for one cup of coffee for the farmer is ? donut and for the baker is ? donutfarmer has opportunity cost in coffee because of lower opportunity cost r. The price range after the trade deal will lie surrounded by opportunity cost of both people, so both are better off xli. 2 cups of coffee ? P ? 4 cups of coffee 4) Chapter 4 Supply and Demand s. Assumptions one good, one market, market is utterly competitive (many buyers and sellers, all goals are the same across firms and price takers) t. Demand xlii. Demand curve shows kin between price and willingness to buy (P and Qd) xliii.Quantity bringed (Qd) is the sum consumers are willing and able to buy xliv. legality OF DEMAND P, Qd = negative correlation xlv. Market demand is the sum of individuals demands xlvi. Variables that increase or decrease demand IP-TEN 1. Income a. I, Qd = Normal good b. I, Qd = Inferior good 2. Price of related goods c. Pa, QDb = Substitutes d. Pa, QDb = Complements 3. Taste and preferences 4. Expe ctationsEx when you except the price of a good to increase later on, you will buy more now when its cheaper 5. account of buyersMore buyers = high demand u. Supply xlvii. Supply curve shows relationship between Price and Quantity supplied (P and Qs) xlviii. Quantity supplied is the amount sellers are willing and able to sell xlix. LAW OF SUPPLY P, Qd = Positive correlation l. Variables that shift tag on curve I-TEN 6. Input price (Ex wages increase) e. IP, Qs f. IP, Qs 7. Technologyadvancement means Cost, Supply 8. Expectationsexcepting a technological advancement 9. Number of sellers g. Sellers, Qs h. Sellers, Qs v.Consider market for hybrid cars li. Event price of gasoline goes updemand is impactedP of gas so people will look for substitutesdemand for hybrids (curve shifts right) lii. Event technology advance reduces cost of productionsupply impactedsupply because its easier and cheaper to produce (curve shifts right)P , Qs liii. Event (i) & (ii) P of gas & technology &g tD and S both impactedD, SQ and P is ambiguous (depends on degrees of shifts and how you represent curve shifts) w. Consider market for bus rides liv.