[ECON 1030] - Midterm Exam Guide - Ultimate 38 pages long Study Guide!

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ECON 1030
MIDTERM EXAM
STUDY GUIDE
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ECON 1030 9/11 (2)
What is Economics?
- using limited resources to try to satisfy unlimited wants
Supply and Demand
o Goods and Services exchange
Behaviors
o Market - exchange
Inputs
Resources
Oil, raw materials
o Classified as Land (Ld) natural resources
Labor Power
o Classified as Labor (L) human resources
Physical Capital
o Classified as Kapital (K) material resources
Know-how
o Classified as Knowledge (Kn) tech resources
Process of production –– output = f (inputs) ----- function of inputs
o Q=f(Ld, L, K, Kn)
o Output depends upon inputs
o Consumption
o Distribution
Basics
1 & 2 allocation
3 distribution
- Wow to balance 1, 2, & 3 is Microeconomics
4 stability
- Macroeconomics
1. What does the Economy choose to produce? (allocation what do we produce)
a. consumer
i. preferences, ability (income)
2. How do we choose to produce? (allocation what do we produce)
a. Firms choose what we think consumers want
3. For whom are goods/services produced? (distribution who gets it)
a. Target market
4. Is it possible (through policy) to impact upon the level and/or direction of
aggregate economic activity? (stability how to maintain)
a. Recession/depression how to change
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- How to determine value: Prices
Production Possibilities Frontier/Model (PPF)
- Production possibilities frontier (boundary)
- All the possible combos of goods/services that an economy can produce
given constraints on resources available and time to produce
- Points on the PPF are Pareto Efficient Production Points
o Pareto improvement: moving from inside to on the line
- Points inside the PPF are Inefficient Production Points
o Unemployment
- Points outside the existing PPF are currently unattainable
o Not enough resources
Production Possibilities Schedule
Example:
1 person Tom
2 goods fish & coconuts
Assume:
Limited resources
o Homogeneous same productivity (same output for given input)
o Productivity: ratio of amount of output we can produce with given
amount of input
Productivity = Output / Input
Unlimited wants
Rational
Opportunity Cost
Value of the next best alternative given up when making a decision
The more fish he gets, the less coconut he can get
- What is the point that is the most efficient?
o Straight line graph
Choices
Qc
Coconut
Qf
Fish
ΔQc
ΔQf
ΔQc / ΔQf
Slope
A
10
0
-2
+1
-2
B
8
1
-2
+1
-2
C
6
2
-2
+1
-2
D
4
3
-2
+1
-2
E
2
4
-2
+1
-2
F
0
5
-2
+1
-2
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