Economics 1021A/B Midterm: Economics 1021 Midterm Review
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Economics 1021 Midterm Review
•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
•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
•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.