Study Guides (248,356)
Canada (121,501)
York University (10,191)
Economics (643)
ECON 1000 (223)
Midterm

econ midterm.docx

9 Pages
179 Views
Unlock Document

Department
Economics
Course
ECON 1000
Professor
Andrea Podhorsky
Semester
Winter

Description
Chapter 1 : What is Economics? Our inability to satisfy all our wants is called scarcity. Because we face scarcity, we must make choices. The choices we make depend on the incentives we face. An incentive is a reward that encourages an action or a penalty that discourages an action. Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices. Economics divides in to main parts: • Microeconomics - the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. • Macroeconomics - the study of the performance of the national and global economies. What, how, and for whom goods and services get produced? Factors of production • Land • Labour (human capital) • Capital • Entrepreneurship Who gets the goods and services depends on the incomes that people earn. • Land earns rent. • Labour earns wages. • Capital earns interest. • Entrepreneurship earns profit. Efficiency is achieved when the available resources are used to produce goods and services: 1. At the lowest possible price and 2. In quantities that give the greatest possible benefit. Equity is fairness, but economists have a variety of views about what is fair. Four topics that generate discussion and that illustrate tension between self-interest and social interest are • Globalization - the expansion of international trade, borrowing and lending, and investment • The information-age economy • Global warming • Economic instability Six key ideas define the economic way of thinking: • A choice is a tradeoff. • People make rational choices by comparing benefits and costs. • Benefit is what you gain from something. • (Opportunity)Cost is what you must give up to get something. • Most choices are “how-much” choices made at the margin. • Choices respond to incentives. Chapter 2: The Economic Problem The production possibilities frontier (PPF) is the boundary between those combinations of goods and services that can be produced and those that cannot. We achieve production efficiency if we cannot produce more of one good without producing less of some other good. Points on the frontier are efficient. Points inside the frontier is inefficient. The marginal cost of a good or service is the opportunity cost of producing one more unit of it. The marginal benefit of a good or service is the benefit received from consuming one more unit of it. The expansion of production possibilities—and increase in the standard of living—is called economic growth. Two key factors influence economic growth: • Technological change • Capital accumulation Technological change is the development of new goods and of better ways of producing goods and services. Capital accumulation is the growth of capital resources, which includes human capital. Chapter 3: Demand and Supply The quantity demanded of a good or service is the amount that consumers plan to buy during a particular time period, and at a particular price. The law of demand states: Other things remaining the same, the higher the price of a good, the smaller is the quantity demanded; and the lower the price of a good, the larger is the quantity demanded. The law of demand results from • Substitution effect • Income effect Substitution Effect When the relative price (opportunity cost) of a good or service rises, people seek substitutes for it, so the quantity demanded of the good or service decreases. Income Effect When the price of a good or service rises relative to income, people cannot afford all the things they previously bought, so the quantity demanded of the good or service decreases. A rise in the price, other things remaining the same, brings a decrease in the quantity demanded and a movement up along the demand curve. A fall in the price, other things remaining the same, brings an increase in the quantity demanded and a movement down along the demand curve. When demand increases, the demand curve shifts rightward. When demand decreases, the demand curve shifts leftward. Six main factors that change demand are: • The prices of related goods • Expected future prices • Income • Expected future income and credit • Population • Preferences Movement Along the Demand Curve When the price of the good changes and everything else remains the same, the quantity demanded changes and there is a movement along the demand curve. A Shift of the Demand Curve If the price remains the same but one of the other same but one of the other influences on buyers’ plans changes, demand changes and the demand curve shifts. The law of supply states: Other things remaining the same, the higher the price of a good, the greater is the quantity supplied; and the lower the price of a good, the smaller is the quantity supplied. The five main factors that change supply of a good are: • The prices of factors of production • The prices of related goods produced • Expected future prices • The number of suppliers • Technology • State of nature Movement Along the Supply Curve When the price of the good changes and other changes and other influences on sellers’ plans remain the same, the quantity supplied changes and there is a movement along the supply curve. A Shift of the Supply Curve If the price remains the same but some other same but some other influence on sellers’ plans changes, supply changes and the supply curve shifts. Equilibrium is a situation in which opposing forces balance each other. Equilibrium in a market occurs when the price balances the plans of buyers and sellers. The equilibrium price is the price at which the quantity demanded equals the quantity supplied. The equilibrium quantity is the quantity bought and sold at the equilibrium price. • Price regulates buying and selling plans. • Price adjusts when plans don’t match. Price Adjustments At any price above the equilibrium price, a surplus forces the price down. At any price below the equilibrium price, a shortage forces the price up. At the equilibrium price, buyers’ plans and sellers’ plans agree and the price doesn’t change until some event changes either demand or supply. Chapter 4: Elasticity The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Calculations: Percentage change in quantity demanded Percentage change in price Demand can be inelastic, unit elastic, or elastic, and can range from zero to infinity. If the quantity demanded doesn't change when the price changes, the price elasticity of demand is zero and the good as a perfectly inelastic demand. (The demand curve is vertical) The price elasticity of demand equals 1 and the good has unit elastic demand. If the percentage change in the quantity demanded is smaller than the percentage change in price, • the price elasticity of demand is less than 1 and the good has inelastic demand. If the percentage change in the quantity demanded is greater than the percentage change in price, • the price elasticity of demand is greater than 1 and the good has elastic demand. Cross Elasticity of Demand The cross elasticity of demand is a measure of the responsiveness of demand for a g
More Less

Related notes for ECON 1000

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit