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UTC ECON 1020 - Exam 1 Study guide

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Econ 1020 1st EditionExam# 1 Study Guide Lectures: 1 - 10Lecture 1 (January 6)Introduction to MicroeconomicsWhat is microeconomics? What is the central focus of it?What is the circular flow?Economics is a social science. The main focus is on humans and you develop and test theories ofthose humans. The central focus is scarcity among unlimited rights. - How to efficiently use resources to satisfy the wants we have- We can only consume what is produced by us or someone elseLimited resources unlimited wantsResources:1. labor- producing goods and services2. entrepreneurship- drive to try something new (new idea/business)3. land- not only physical or location but all mineral resources4. capital- plants, equipment, inventories- Human capital (skills/talents you have as a person) The Circular Flow- The simplification of the economy- Households own all the resources- Income = wages, salary, commission, rent, and profit- Households : buy final goods and services (spend money) -> expenditureso you buy things you wantCircular flowResource marketBusinessFinal goods and service marketHouseholds- Most businesses produce intermediate goods and services o people do things that make themselves feel good (rational self-interest)Lecture 2 (January 8)What is the central concept of economics? What is the difference between positive and normative economics? What is a production possibilities frontier (PPF)?The central concept of economics is opportunity cost.- The best forgone alternative is opportunity cost. o What we give up do something else.- Increase your opportunity cost by developing skills. Positive economics can prove a statement right or wrong. Normative economics deal with values/ethics judgments (can’t prove right/wrong)Production Possibilities Frontier (PPF)- Depicts the maximum possibilities of production resources fully and efficiently- There is always scarcity even when the point is on PPF- Point on PPFis when both are fully and efficiently using the resources- Inside PPF = not both fully/efficiently using resources- Outside PPF = not an attainable use of the resources- The unit of measurement on the PPF is always relevant- Where you want to be on the PPF is normative- Full utilization of all resources is macroeconomics- Efficient utilization of all resources is microeconomicsLecture 3 (January 13)How does the PPF shift? Which direction is an ideal shift? - Ideally, you want the PPF to shift outward. -Better technology can cause an outward shifo More efficient using technology- The shift isn’t uniform (not the same)-An increase in the workforce shifs the PPF outward-Unemployment does not shift the PPF because it isthe same workforce-Better healthcare allows a healthier workforcemaking resources more full and efficient making thePPF shift outward. What makes the PPF shit inward?- Loss of resources- Less efficient technology (government takes away)Fundamental Economic Questions1. What should we produce?2. How much should we produce?a. How to produce something?3. For who should we produce?4. How do we make resources more adaptable?Lecture 4 (January 15)What type of system does the US have? What is GDP?Traditional system- doing things because that’s the way things have always been done.The United States has a mixed market system. - Predominantly a capitalist systemGDP (Gross Domestic Product)- The production of final goods and services during some time period.- Final goods and services are something used by households and consumed by the households.3 means to measure GDP1. Expenditure approach- Using the total market price for goods and services2. Income approach- Income= outcome/expenditure3. Value added approach- Measure the value added to a product at different stagesHobbies that do something to make money do not count in GDPUsed car dealerships do not count in GDPLecture 5 (January 20)What is the difference between real and nominal GDP? What is supply and demand?- Real and nominal values  particularly GDP- Real GDP = nominal GDP/price indexSupply and DemandDemand: relationship between price andquantity demanded (always downwardsloping)- Higher prices usually pushes thequantity demanded downwardSupply: relationship between price anddesired rate of selling (quantity supplied,always positively slope)Equilibrium: absence of frustrationCeteris Paribus for Demand (other factors remained constant)1. income2. tastes and preferences3. prices of other (substitutes/compliments)4. expectations5. number of consumersCeteris Paribus for Supply1. Changes in technology2. Price of inputs3. Number of producersLecture 6 (January 22)How do changes in ceteris paribus shift supply and demand?- Change in price moves along the demand and supply curve- Change in C.P. for demand, the demand curve shifts- Change in C.P. for supply, the supply curve shiftsExample: Ice Cream Supply and Demand1. If income decreases  quantity demanded decreases- Demand curve shifts left or down- Disequilibrium (less demand than what is supplied)  sales- Price goes down, quantity demanded goes up2. Higher tastes and preferences causes demand to go up- Demand curve shifts right (higher demand=shortage)- Higher demand causes higher prices and a new equilibrium3. Price of other good (compliment) goes down  quantity demanded goes up- Demand curve shifts right- New equilibrium because of the shift- Increase of quantity supplied and quantity demanded Price of other good (substitute) goes down quantity demanded goes up- Demand curve for ice cream shifts left- Price and demand for ice cream goes downo New equilibrium4. Consumer expectation for ice cream goes up  price goes up - Quantity demanded goes up- Demand curve shifts right- Price goes up and demand goes upo New equilibrium5. More consumer  demand goes up- Demand curve shifts right- Increase in demand, supply, and priceo New equilibriumLecture 7 (January 27)How do changes in ceteris paribus shift supply and demand?Example: Ice Cream Supply and Demand1. Better technology for ice cream  supply curve shifts right (down)-More efficient-Quantity supplied > quantity demanded surplus-Lower supply, demand, priceo New equilibrium- Movement along demand curve- Increase relationship in price and quantity supplied2. Price of inputs goes up  price of good goes up- Supply curve shifts left (up)- Price goes up so demand goes down (movement of demand curve)3. Decrease in # of firms selling ice cream- Fewer firms = less ice cream- Supply curve shifts left (up)-


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