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Midterm

ECN 104 Study Guide - Midterm Guide: Demand Curve, Economic Equilibrium, Inverse Relation


Department
Economics
Course Code
ECN 104
Professor
Tsogbadral Galaabaatar
Study Guide
Midterm

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May, 19th, 2013 Chapters 1-5
Microeconomics Chapter 1 & 2
Wants: needs and desires for goods and services
Ex. Needs: You’re sick, you need a doctor
Desire: You want a BMW
Goods: Something tangible
Services: Something Intangible
1. Wants are Unlimited
Wants can be satisfied by consuming goods and services (g + s)
Resources are required to produce (g + s)
2. Resources are Limited/ Scarce
Opportunity Cost: Alternatives sacrificed when a choice is made
Economics is about minimizing opportunity cost
Micro: Specific or individual households, businesses or industries. (Ex. Gas, airlines)
Economics
Macro: Aggregate; entire economy (ex. Canada’s inflation/Economy/ Industries)
Positive: Fact; what is
Economic Statements
Normative: Opinion; what ought to be
Resources (inputs/ factors of production)
1. Land (primary): All natural resources on or under the earth, in the air or under water.
2. Labour: All physical, mental, skilled & unskilled work. (Done by people/ humans)
3. Capital: All man made tools machines etc. Is used for further production. (ex. Hammer, road)
4. Enterprise: Combines and directs all other resources (ex. Ryerson, General motors)
(-Most for the least)
(-Best use of scarce
resources
-Efficient Resource
allocation)
Choices

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May, 19th, 2013 Chapters 1-5
Circular Flow:
1. Demand g + s
Households:
2. Supply resources
1. Demand Resources
Businesses/ Firms:
2. Supply g + s
Circular flow diagram
[Product Market]
Expenditure on g + s
g + s
[Households] [Businesses]
Resources
Incomes
[Resource/ Factors of market]
= Real flow
------ = Monetary flow
4 sources of income
1. Rent
2. Wages
3. Interest
4. Profit Residual Income (leftover income)
Uncertain
May be negative
Basic Economic Question:
1. What to produce?
2. How to produce?
3. Where to produce?
4. When to produce?
5. For whom to produce?

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May, 19th, 2013 Chapters 1-5
(Public production for welfare) (Private production for profit)
--------------------------------------------------------------------------
Pure command economy Pure Market
(Communism) (Capitalism)
-Gov’t/ State owned
-Gov’t/ Sets targets
Production Possibility Curve (PPC): The PPC shows all the combinations of the 2 goods, which a country
can produce if it uses all of its resources
Assumptions:
1. 2 goods
Ex. Guns & Butter
2. Given resources
3. Fixed technology
4. Full employment of resources
Examples of True/False Questions:
The PPC shows all the combinations that a country desires: F (**A country is capable**)
If a country uses its unemployed resources its PPC shifts outwards: F
Features:
1. Private ownership of resources
2. freedom of choice
3. freedom of occupation
4. freedom of enterprise
5. Motivated by self interest
Consume: Max satisfaction
Producer: Max profit
6. Gov’t follows a policy of “laissez-
faire” (no government intervention)
7. Invisible Hand: guides the economy,
market forces of supply and demand
Butter
Guns
A
10
0
B
9
1
C
7
2
D
4
3
E
0
4
A
B
C
D
E
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