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Midterm

EC120 MIDTERM 1 EXAM NOTES.docx

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Department
Economics
Course
EC120
Professor
Logan Mc Leod
Semester
Fall

Description
EC120 MIDTERM EXAM 1 NOTES AMANDA ESMAILIAN CHAPTER 1 TEN PRINCIPLES OF ECONOMICS Scarcity The limited nature of societys resourcesEconomics Study of how society manages its scare resourcesHow people decide what to buy how much to work save and spendHow firms decide how much to produce and how many workers to hireHow society decides how to divide resources between competing interestsMicroeconomics A branch of economics to study the behavior of consumers and producersAll decisions involve tradeoffs EfficiencyWhen society gets the most out of its scare resourcesEquity When prosperity is distributed more fairly among member of society Redistribution is generally accomplished through a progressive tax system and social programs Opportunity costof an item is whatever must be given up to obtain itRational people make decisions by evaluating costs and benefits of marginal changes they only take action if marginal benefits exceed marginal costsMarginal change Small incremental adjustmentsIncentive Something to induce a person to actIndividuals benefit from trade and specialization it is inefficient for one individual to produce everything themselvesMarket A group of buyers and sellers Market Economy Allocates resources through the decentralized decisions of many households and firms as they interact in marketsMarket failure A situation in which a market left on its own fails to allocate resources efficientlyExamples Externalities When the production or consumption of a good affects bystanders Market power A single buyer or seller has substantial influence on market price
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