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Microeconomics - September 27, 2017

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cuniliti's version from 2017-09-25 17:00

Section

Question Answer
EconomicsStudy of how people cope with scarcity and the incentives that influence those choices.
MicroeconomicsStudy of choices individuals and firms make.
Six ways to think like an economistTradeoff is a choice
Comparing benefits and costs
Benefits: What you gain from something.
Cost: What you must give up to get something
Most choices are “how much” made at the margin
Choices respond to incentives
PPFBoundary between two combinations of goods and services that can be produced and those that cannot.
UnattainableOutside the PPF curve.
InefficientInside the PPF curve.
Shift PPF outEconomic growth.
MovementTradeoff, opportunity cost.
Marginal costThe opportunity cost of producing 1 more unit (input / output).
Marginal benefitThe benefit of consuming 1 more unit (preferences).
Comparative advantageA person that can perform the activity at a lover opportunity cost than anyone else.
Gains from trade and calculating opportunity costsPeople keep trading or consuming goods.
Relative PricesRatio of one price to another (opportunity cost).
Law of DemandMore expensive, people less willing to buy.
Less expensive, more people willing to buy.
Substitution EffectIf price rises, so does opportunity cost and the incentive of buying a substitute item.
Income EffectWhen price rises relative to income, people must decrease the services they previously brought.
Demand/Supply IncreasesCurves shift out.
Demand/Supply DecreasesCurves shift in.
Demand CurveRIPE
related goods (substitutes, complements), income, population, preferences, expected future (prices, income, credit).
Supply CurvePETS
prices of factors of production and related goods, expected future prices, state of nature, number of suppliers, technology
Shortage and surplusSurplus forces price down.
Shortage forces price up.
Quantity DemandedAmount that consumers plan to buy during a particular time period or price.
Quantity SuppliedAmount that producers plan to sell during a particular time period or price.
Price Elasticity of DemandResponsiveness of the quantity demanded of a good to a change in its price, other things remain the same.
Price Elasticity of Demand(Change in quantity / average of quantity) / (Change in price / average price)
ElasticOver 1, price sensitive (price up, you buy less), drop prices.
Total revenue increases.
Unit Elastic1, fair, a price reduction leads to no change.
Total revenue remains unchanged.
InelasticUnder 1, not price sensitive (price up, you buy more), raise prices.
Total revenue decreases.
Income ElasticityResponsiveness of the quantity demanded of a good to a change in income, other things remaining the same.
Income Elasticity(Change in quantity / average of quantity) / (Change in income / average income)
Cross Elasticity of DemandMeasures if people will switch from one good to another, due to change of price.
Cross Elasticity of DemandPercentage change in quantity demanded / Percentage change in price of a substitute or complement
Positive Cross Elasticity of DemandSubstitutes.
Negative Cross Elasticity of DemandComplements.
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Formulas

Question Answer
Marginal costInput / output
Price Elasticity of Demand(Change in quantity / average of quantity) / (Change in price / average price)
Income Elasticity(Change in quantity / average of quantity) / (Change in income / average income)
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Six Ways to Think Like an Economist

Question Answer
Six ways to think like an economistTradeoff is a choice
Six ways to think like an economistComparing benefits and costs
Six ways to think like an economistBenefits: What you gain from something.
Six ways to think like an economistCost: What you must give up to get something
Six ways to think like an economistMost choices are “how much” made at the margin
Six ways to think like an economistChoices respond to incentives
memorize

Curves

Question Answer
Demand CurveRIPE
related goods (substitutes, complements), income, population, preferences, expected future (prices, income, credit).
Supply CurvePETS
prices of factors of production and related goods, expected future prices, state of nature, number of suppliers, technology
Related goods (substitutes, complements)Demand
IncomeDemand
PopulationDemand
PreferencesDemand
Expected future (prices, income, credit)Demand
Expected future pricesBoth
Expected future incomeDemand
Expected future creditDemand
Prices of factors of productionSupply
Prices of related goodsSupply
State of natureSupply
Number of suppliesSupply
TechnologySupply
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