A+ Notes: Midterm Summary

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Published on 1 Oct 2011
Economics for Management Studies
Economics Mid-Term #1
oWhat is economics? (use of scarce resources to satisfy wants)
oFactors of production (land, labour, capital) scarcity & choice
o3 economic questions
opursue self-interest self-organizing economy
oefficient org’n of economy & invisible hand
oefficiency means producing all G/S ppl want using the least resources
o4 main charact. of market econ. (self-interest, incentives, market $P & Q, institutions[3])
oOpportunity cost
oimplicit (ex. time) & explicit (actual $ value)
oPPF – max. output w/ given resources
othere are no free lunches except when moving from attainable to efficient
o4 key economics problems:
oresource allocation (microecon.)
owhat is consumed/by whom (microecon.)
oidle resources – unemployment, not operating @ full capacity
ogrowing productive capacity (outward shift of PPP)
omicroecon vs macroecon
oWho makes choices and how?
oassume maxizimers consumers (well-being), producers (profit)
omarginal cost weighed against marginal benefit
oflow of income and g/s
ospecialization trade of g/s on markets & learning by doing
odouble coincidence of wants (for barter)
odivision of labour for (1) mass production (2) flexible manufacturing/lean production
oglobalization (1) transportation costs go down (2) technology
opg 22 #9
onormative (judgement) vs. positive (facts, but not necc. true)
oendogenous variable (dependent), exogenous (independent)
odiminishing marginal response – amt you get for each add. $1 decreases as TE increases
odemand has neg. slope. why? (SR supply has pos. slope. why?)
oif P, equation imbalance, consumer decreases consumption b/c as consumption, MU
oin LR, supply is less steep b/c of new firms & more f.of.p.
oWhat is a market? competition? – perfectly competitive market
oLaw of Demand & Supply – DD, SS
oChange in income = change in avg income OR change in distribution of income
oabsolute vs relative prices
oDD reflects utility, measured in $
outility always as consumption (more is better, but not better at same rate)
odiminishing marginal utility – MU as consumption
ooptimal purchase rule – such that MU=DD=P
oconsumer surplus - $ value of utility above price, as $P , CS
oflat fees find (all area under DD – FF)
omarket DD from indiv. DDs
osubstitution effect and income effect
oif P , increase demand for good or more real income to buy other things
oGiffen good – inferior good, pos. slope DD (In. effect >sub. effect), large % of household exp. (for the
large in. effect)
oelasticity – responsiveness of QD to changes in price
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