HIST 109 1st EditionExam # 1 Study Guide Lectures: 1 - 6 Study Guide: Midterm 1 (April 25)(Based off of lecture notes only; highly recommend reading book chapters)Lecture 1: (April 2)Economics: the study of [how society, which is made up of individual,] allocates scarce resources among competing uses for those resourcesUnlimited WANTS vs. Limited RESOURCESScarcityChoicesDo Not to do!Opportunity cost: highest value use sacrificed when a decision is madeExample: the choice you make to do something else instead of what you are doing nowHOW DO WE ALLOCATE RESOURCES? (Violence; First come, first serve; personal characteristics; legal allocations; market)1. Violencea. Favors the violent, bigb. Discriminates against the weak and meek2. First come, first servea. Favors the people with low values on their timeb. Discriminates against those with high values on their time3. Personal characteristicsa. Favors those who posses personal characteristicsb. Discriminates against those who do not possess the personal characteristics4. Legal allocationsa. Favors those who are legally/politically powerfulb. Discriminates those who cannot hire a lawyer5. MarketThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.a. Favors the wealthy, richb. Discriminates against the poorAll of these points are discriminating against those who won't get the goods.Lecture 2: (April 4)THREE UNIVERSAL QUESTIONS (ASKED BY ALL TYPES OF SOCIEITIES)1. What are we going to use the resources to produce?2. How are we going to produce?3. For whom?How are the questions answered?- Tradition: the way it has always been done; the easiest way to explain; specific, set ways to produce something Not a dynamic economy- Central planningo Social democratic: elected representatives that can be replacedo Autocratic -no feedback system (not really in existence today, but relatable to North Korea)- Market: consumers reveal what they want the resources to be used forHOW ARE ECONOMIC THEORIES JUDGED? Analysis of a good theory explains behavior1. Form a hypothesis from a positive statementa. Positive statement: a true/false FACT that people can agree upon whether it is true/falsei. Example: 'the world is flat' -wrong, but based on fact2. Collect data3. Does the hypothesis explain behavior?a. Yes? a good theoryb. No? not a good theory $Marginal = AdditionalMarginal benefit DECLINES the more you do somethingMarginal cost INCREASES the more you do somethingYOU WANG MB>MCM.B.Quantity/Time (Q/T)Q*M.C.Beyond Q*, cost is greater than benefitsSummary of the course as a whole: (Course just makes things more complicated)If the benefit of an activity is greater than the cost, you will do it.If the benefit of an activity is smaller than the cost, you will NOT do it.Supply and Demand'Need' overlooks 3 interrelated facts:Nothing is freeo Something distributed at a free price is not freeo Hidden fees from resources that were used into making the productEverything has a substitute -not all substitutes are good thoughDecisions are made by weighing costs and benefitso ***What do we WANT and what other WANTS are we willing to GIVE UP***Demand: relates the amounts consumers are WILLING and ABLE to purchase w/ various sacrifices (prices)Lecture 3: (April 9)Law of Demand: as the sacrifices necessary to acquire a unit of good increases, the amount of consumers are willing and able to purchase decreases while everything else is held constant$Change in quantity demanded, QD:-Caused only by a change in the products own price 1.25-Movement along the existing demand curve-Law of Demand 1.00 Q1.25 Q1.00 Q/tChange in demand:-Caused by anything other than own price that affects the amount consumers are willing and able to purchase-Illustrated by a shift in the entire curve Price Shift to the right, and INCREASE in demand Shift to the left, and DECREASE in demandBIG 5 SHIFT FACTORS FOR INDIVIDUAL DEMAND CURVES: Tastes of preferenceso something is stylish, curve will shift to the right (green line)o something is a health risk, curve will shift to the left (blue line) Price expectationso buying now will increase it knowing prices for next week will increase Price of substanceo price of apples increases, so the demand for pears increases Price of complement (CD and a CD player)o if CD price decreases, the CD player price increases Incomeo Normal good: as income goes up, the demand increaseso Inferior good: as income goes up, the demand decreases Inferior good: used cars, low quality meats Market demand: when there are more consumers, there will be an increase in the market demando Example: the first market is only with the first three consumers; when a fourth consumer is added to the bunch, the whole market demand increases (because overall total of the market demand increases when someone is added into the picture)Lecture 4: (April 11)Alleged Exceptions of Law of Demand:1. Luxury goods: 'ooohhh ahhhh' effecta. Not everything is held constantb. When a luxury good becomes available and cheaper for everyone to buy, there is no more satisfaction for having that good since everybody else has it2. Prices changinga. Price exceptions changeb. Example: Coffee costs $10/lb in Jan. for 1 bag; coffee costs $18/lb in April for 4 bags3. Quality: people do not want to pay discount prices for a counterfeit gooda. Freshnessb. OwnershipGiffen GoodSupply: relates the amount producers are willing and able to bring to the market at various prices***There is no Law of Supply***Supply Curve<---- This is the supply curve we will deal with the mostChange in quantity of supply, QS: -Caused by a change in the product's current own price and we move along an existing supply curveSupply Curve 2 10Change in Supply:-Caused by a factor other than the product's current own price that affects the amount producers are willing and able to payŜ SP1Q/tBusinesses with very large costsChicken noodle soup at Ralphs will always be 2.00 nomatter what quantity you get at different timesOriginal Picasso painting;no matter the $, there will only be one painting32Š1. Change in price of inputs ($ increases, shifts left)2. Change in technology (increase in tech, shifts right)3. Change in govt. policy (taxes increase, shifts left; subsidies increases, shifts right)Market