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
Chapter2:ThinkingLikeanEconomist
1. ModelsandAssumptions
2. CircularFlowDiagram
3. ProductionPossibilityFrontier(PPF)
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4/3/2018 Final: Econ - Google Docs
https://docs.google.com/document/d/14MBEiioSv-F09GU9v53Q1Q3oVu-DKOCyTGyBPGSOn6s/edit 3/11
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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