Economics 1021A/B Midterm: Economics 1021 Midterm Review

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Published on 20 Sep 2015
Western University
Economics 1021A/B
Economics 1021 Midterm Review
Chapter 1
Economic questions arise from scarcity
Choices depend on incentives
Microeconomics  choices of individuals + businesses
Two Big Economic Questions:
oHow do choices determine what, how, and for whom goods and
services are produced, and in what quantities?
oHow can self-interested choices also promote the social interest?
Factors of Production  used to produce goods + services
oLand (nat. resources)  earns rent
oLabour (knowledge and skills, training, experience)  earn wages
oCapital (machinery)  earns interest
oEntrepreneurship  earns profit
Society = efficient when available resources are used to produce goods and
services at the lowest cost.
Oppurtunity cost  highest-valued alternative forgone
Rational choices compare cost and benefits and achieve the greatest benefit
over cost
Big tradeoff = between equality and efficiency
Marginal benefit  benefit from consuming 1 more of the good/service
Marginal cost  cost of producing 1 more good/service
Positive Statements: what is  can be proven wrong
oEconomics is concerned with positive statements
Normative statements: what ought to be  cannot be tested
Economic models  simplified description of the economic world
Chapter 3
Competitive market: market that has many buyers + sellers  price is not easily
Substitute: product that does the same thing for a cheaper price
Types of Prices:
Money price: price of an object ($$$)
Relative price (aka opportunity cost): ratio of $ price to $ price of another good
Quantity demanded: amount that consumers plan to buy within given time period
at a particular price
oMeasured as an amount per unit of time
1 coffee/day, 7/week, 365/year, etc.
Law of Demand: Price goes up  quantity demanded goes down. Price goes
down  quantity demand goes up.
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