ECO 182 Study Guide - Final Guide: Marginal Cost, Opportunity Cost, Marginal Product
25 May 2018
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Key Concepts
Microeconomics is the study of choices that individuals and businesses make,
the way those choices interact in markets, and the influence of governments.
Key drivers are price, choice and marginal benefit
Production Possibilities Frontier (PPF) is the boundary between those
combinations of goods and services that can be produced and those that
cannot. The outward bow of the PPF means that as the quantity produced of
each good increases, so does its opportunity cost.
Opportunity Cost => What is given up to obtain a benefit/desired outcome.
Example of a two dimensional model would the opportunity cost of a pizza is
the cola forgone. Opportunity Cost is expressed aIs a Ratio
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 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. (Move
along the curve)
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Change in demand When some influence on buying plans other than the price
of the good changes. The quantity of the good that people plan to buy changes.
(The curve shifts in/out)
Law of supply: 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. (Move along the curve)
Change in Supply: When some influence on selling plans other than the price of
the good changes, there is a change in supply of that good. Technology /
nature/ prices of related goods. (The curve shifts in/out)
Price elasticity of demand: 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.
Income elasticity of demand: Measures how the quantity demanded of a good
responds to a change in income, other things remaining the same.
Budget Line: Consumption possibilities are limited by income. Within these
choices there are preferences, which are dictated by utility.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Microeconomics is the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. Key drivers are price, choice and marginal benefit. Production possibilities frontier (ppf) is the boundary between those combinations of goods and services that can be produced and those that cannot. The outward bow of the ppf means that as the quantity produced of each good increases, so does its opportunity cost. Opportunity cost => what is given up to obtain a benefit/desired outcome. Example of a two dimensional model would the opportunity cost of a pizza is the cola forgone. 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.
