VCU ECON 203 - Final Exam Study Guide (15 pages)

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Final Exam Study Guide

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Final Exam Study Guide


An overview of all class work for the final exam.

Study Guide
Virginia Commonwealth University
Econ 203 - Introduction to Economics
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ECON 203 1st Edition Final Exam Study Guide All Lectures Lecture 1 August 22 Introduction to Economics Economics is the study of choices made by people in the presence of scarcity The choices people make given the circumstances they are in microeconomics focuses on specific units and transactions macroeconomics focuses on the economy as a whole economic models are simple general and useful They assume people are rational and self interested Lecture 2 September 9 positive statements are statements of fact of what is or what would occur if something else were to happen They must be true or false normative statements state what should be They can t be true or false fallacy of composition occurs when something that may be good for one person is considered good for everyone post hoc fallacy occurs when it is assumed that since event A happened before event B A caused B It is important to avoid assuming causality just because a sequence has been noticed other conditions fallacy assuming that since two events happened together in the past that they will always occur together in the future misleading comparison comparisons that are made that do not reflect the true differences between the goods This is mostly made because people forget to account for adjustments of circumstances scarcity limited resources with limited demands Every choice made incurs a cost whether it be money or time scarce goods any good that has a higher demand than is available opportunity cost the highest cost a person is willing to pay for a good consumer demand Total use value TV the value each individual person puts on a good The amount they are willing to trade to receive the good marginal use value MV the highest price a consumer will see and still be willing to pay for a good Lecture 3 consumer demand cont principle of diminishing marginal value as consumption increases additional units will generate less value to the consumer than previous units marginal value decreases with quantity decision rule people will buy units until MV is equal to the market price demand curve the relationship between price and quantity first law of demand holding other relevant factors constant as the price of good x increases the number of units of the good desired decreases and vice versa ceteris paribus conditions price of other goods income of consumers normal goods demand increases as income increases Inferior goods demand decreases as income increases everything else that may alter the perception of value Lecture 4 anything that causes the consumer to see more value in a good than before will increase demand Anything that causes the consumer to see less value in a good than before will decrease demand ceteris paribus condition of price of related goods Substitute goods when one good can take the place of another Compliment goods when the price of one good affects the demand of another ceteris paribus condition of all other factors Weather season taste preference information expectation of future prices assert decision rule for supply producers will not make units that cost more to make than what they collect in profit Lecture 5 producer supply marginal cost the specific cost associated with a particular unit s production profit total revenue the total cost of production principle of rising marginal cost as production rates increase additional units cost more to make than previous ones first law of supply holding all other relevant factors constant the higher the price of a good the greater the quantity supplied ceteris paribus conditions for supply input prices technology everything else Lecture 6 Comparative static analysis increase in demand raise in income for normal goods decline in income for inferior goods raise in price of substitute good decline in price of compliment good anything else that causes you to perceive more value than before decrease in demand decline in income for normal goods increase in income for inferior goods decline in price of substitute good incline in price of compliment good anything else that will cause you to perceive less value than before increase in supply decline in input prices technological innovations anything else that lowers the per unit production cost decrease in supply increase in input prices technological regulation degradation anything else that raises the per unit production cost Lecture 7 Consumer Producer Surplus total value TV what consumers receive The total use value of Q is shaded Total Cost TC Total Expenditures TE Total Revenue TR TE what consumers spent TR P Q what sellers receive by selling Q units Consumer surplus Consumer surplus CS the difference between what consumers receive and the value spent CS TV TR TV P Q The higher the CS the better off consumers are Producer surplus Producer Surplus PS TR TC P Q TC The higher the PS the better off producers are Gains from trade Gains from trade CS PS It s a measure of welfare of society Lecture 8 Price Ceiling blue consumer surplus CS red producer surplus PS yellow dead weight loss Welfare loss CS TV TE PS TR TC GFT CS PS Price ceiling sets a maximum price of a good below the equilibrium price Dead Weight Loss the gains from trade that would have been generated at equilibrium but no longer exist due to controlled market Price Floor A price floor is a minimum price set by law As unit prices of labor become more expensive technology will be utilized in order to make workers more productive Lecture 9 A price floor creates a need for an allocating scheme in order for producers to decide how which consumers will receive the good society is worse off with DWL consumers are also worse off Lecture 10 Elasticity Elasticity of demand the level of responsiveness How one condition changes in response to the change of another condition Ed Qdx Px Ed is unitless Ed 0 perfectly inelastic whatever the price change and no matter the size of the price change the Qd will not change A violation of the first law of demand Ed is between 0 and 1 relatively inelastic the percentage of price change is larger in size than the Qd Goods and services in this area tend to have no substitutes Consumers may change behavior but not by much Lecture 11 Elasticity cont Ed 1 unit elastic change in price and change in quantity demanded are equal in magnitude Very rare in the real market Ed is between 1 and infinity relatively elastic changes in price cause a substantial change in quantity demanded perfectly elastic changes in price will have massive changes in

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