ECON 101 Final: Economics 101 Final Study Guide

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3 Apr 2018

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4/3/2018 Final: Econ - Google Docs

https://docs.google.com/document/d/14MBEiioSv-F09GU9v53Q1Q3oVu-DKOCyTGyBPGSOn6s/edit 1/11

Economics101Final



AbsoluteAdvantage:useslowerinputs/lowerhoursoflabor

ComparativeAdvantage:loweropportunitycost



Chapter1:TenPrinciplesofEconomics

1. Peoplefacetradeoffs

2. Thecostofsomethingiswhatyougiveuptogetit

3. Rationalpeoplethinkatthemargin

4. Peoplerespondtoincentives

5. Tradecanmakeeveryonebetteroff

6. Marketsareusuallyagoodwaytoorganizeeconomicactivity

7. Governmentscansometimesimprovemarketoutcomes

8. Pricesrisewhenthegovernmentprintstoomuchmoney

9. Societyfacesashortruntradeoffbetweeninflationandunemployment

TermstoRememberfromChapter1:

●Scarcityshortinsupply,shortage

●Economicsonewhomanagesahousehold

●Efficiencysocietyisgettingthemaximumbenefitsfromitsscarceresources

●Equalitythosebenefitsaredistributeduniformlyamongsociety’smembers

●Opportunitycostwhatyougiveuptogetthatitem

●Rationalpeoplesystematicallyandpurposefullydothebesttheycantoachievetheirobjectives,

giventheavailableopportunities

●Marginalchangeasmallincrementaladjustmenttoanexistingplanofaction

●Marginalbenefit

●Marginalcost

●Incentivesomethingthatinducesapersontoact

●Marketeconomypricesofgoodsareguidedbyindividualbusinessesandcitizens

●Centrallyplannedeconomystateorgovernmentmakeseconomicdecisions

●Propertyrightstheabilityofanindividualtoownandexercisecontroloverscarceresources

●Marketfailurereferstoasituationinwhichthemarketonitsownfailstoproduceanefficient

allocationofresources

●Externalityimpactofoneperson’sactionsonthewellbeingofabystander

●Marketpowerabilityofanindividualeconomicagent,orsmallnumberofeconomicagents,to

influencethemarketpriceofagoodorservice

●Productivityamountofgoodsandservicesproducedbyeachunitoflaborinput

●Inflationanincreaseintheoveralllevelofpricesintheeconomy

●Businesscycletheirregularandlargelyunpredictablefluctuationsineconomicactivity,as

measuredbytheproductionofgoodsandservicesorthenumberofpeopleemployed

●Invisiblehandtheideathatifeveryonefendsforthemselvesandlooksoutforthemselvesin

termsofincomethatthemarketwillcontrolitself,guidingthemarket(AdamSmith).

(Capitalism)



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4/3/2018 Final: Econ - Google Docs

https://docs.google.com/document/d/14MBEiioSv-F09GU9v53Q1Q3oVu-DKOCyTGyBPGSOn6s/edit 2/11

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Chapter2:ThinkingLikeanEconomist

1. ModelsandAssumptions

2. CircularFlowDiagram



3. ProductionPossibilityFrontier(PPF)

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4. Microeconomicsvs.Macroeconomics

a. Microeconomicsstudyofhowhouseholdsandfirmsmakedecisionsandhowthey

interactinspecificmarkets

b. Macroeconomicsstudyofeconomywidephenomena

5. Positivevs.NormativeStatements

a. Positivestatementsaredescriptive

i. Makeaclaimabouthowtheworldis

b. Normativestatementsareprescriptive

i. Claimabouthowtheworldoughttobe

ii. Theywanttolearnhowtoimprovetheeconomy

TermstoRememberfromChapter2:

●Microeconomicsstudyofhowhouseholdsandfirmsmakedecisionsandhowtheyinteractin

specificmarkets

●Macroeconomicsstudyofeconomywidephenomena

●Positivestatementsdescriptive,howtheworldis

●Normativestatementsprescriptive,howtheworldshouldbe

Chapter3:InterdependenceandtheGainsfromTrade

1. AbsoluteAdvantage

a. Comparingtheproductivityofoneperson,firm,ornationtothatofanother

b. Producerthatrequiresasmallerquantityofinputstoproduceagoodissaidtohavean

absoluteadvantageinproducingthatgood

2. SpecializationandComparativeAdvantage

a. ComparativeAdvantage–describingtheopportunitycostsfacedbytwoproducers

3. GainsfromTrade

4. PriceofTrade

TermstoRememberfromChapter3:

●AbsoluteAdvantage–comparingtheproductivityofoneperson,firm,ornationtothatofanother

●ComparativeAdvantage–describingtheopportunitycostsfacedbytwoproducers

●Opportunitycost–costofsomethingiswhatyougiveuptogetit

●Exports–goodsproduceddomesticallyandsoldabroad

●Imports–goodsproducedabroadandsolddomestically

Chapter4:TheMarketForcesofSupplyandDemand

1. MarketsandCompetitiveMarkets

a. Markets–groupofbuyersandsellersofaparticulargoodorservice

b. CompetitiveMarkets–amarketinwhichtherearesomanybuyersandsomanysellers

thateachasanegligibleimpactonthemarketprice

2. DemandCurve

a. LawofDemand–relationshipbetweenpriceandquantitydemandedistrueformost

goodsintheeconomy

b. FromIndividualtoMarketDemandCurves

c. MovementalongversusShiftsintheDemandCurve(ChangeinQuantityDemandedvs.

ChangeinDemand)

3. SupplyCurve

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ECON 101 Final: Economics 101 Final Study Guide

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