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Econ 101 Midterm 1 Review Notes.docx

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Andrew Wong

Econ 101 Midterm 1 Review Notes PPF A graph showing the maximum attainable combinations of 2 goods that an economy can produce using its available resources. Productively Efficient Producing in away that best uses all of the economy’s resources. Opportunity Cost What you must give up in order to obtain something else Absolute Advantage The ability to produce a good at a low opportunity cost than its competitors Imports Goods purchased form a foreign country Exports Goods sold to a foreign country Autarky When a country is self-sufficient Law Of Demand As price increases, demand decreases Law Of Supply As price increases, production increases Normal Good A good for which an increase in income results in an increase in demand Inferior Good A good in which an increase in income results in a decrease in demand for that good Substitutes When an increase in prices for the one product results with a increase in demand for another product Complements When an increase in price of one product results in decrease in demand for another product Market Equilibrium Quantity demanded = Quantity supplied Perfect Competitive Market Situations in which all market participants are price takers Total Revenue (TR) The amount a consumer spends on a product P x Q Fixed Supply The quantity of a product supplied doesn’t change when price changes Fixed Demand The quantity of a product demanded doesn’t change when the price changes Elasticity The measure of how much one economic variable responds to changes in another economic variable Price Elasticity Demand (% change in Q) / (% change in P) Price Elastic Demand (-) Price elastic demand > 1 Price Inelastic Demand Price inelastic demand < 1 Unit Elastic Demand = 1 Property Rules Tells us what’s mine, yours, ours, and determines what constitutes theft Contract Rules Rules that tell us what constitutes lawful exchanges Free Market A market with liability, contract and property rules without government intervention Intellectual Property The ideas that contribute to the availability of goods and services Asymmetric Information When a buyer or seller has more or better information than the other Adverse Selection Situation in which one party la
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