Econ 2023 1st EditionExam # 1 Study Guide Lectures: 1 - 8Lecture 1 (January 13)What is Economics?-The study of how to allocate scarce resources, “the study of choice and its consequences both intended and unintended” Anthony M. Carilli.What is scarcity? -The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. (Choices are necessitated by scarcity.)Fighting Scarcity:-Reduce, reuse, recycle.-Discovery of new Technologies.-The division and specialization of labor.What is a theory or model in economics? -It is a representation of an object or situation that is simplified while including enough of the key features to help us understand the object or situation.Kind of model: Production possibility frontier:-shows all efficient combinations of output for an economy at a point and time, given available resources and technology.What is ceteris paribus? -“All other things held constant.” Lecture 2 (January 15) What is the law of diminishing returns? -As additional increments of a resource are added to producing a good or service, the additionaloutput associated with the additional increments of the resource will decline.What is comparative advantage? -Deals within the law of diminishing returns that is when compared to something else, you are relatively better which gives you a slight if not clear advantage.Compare productive and allocative efficiency:-Productive efficiency: “right” level of output- if you are on the frontier. When it is impossible to produce more of one good without decreasing the quantity produced of another good.-Allocative Productivity: “right” mix of output- how you allocate your resources (divide them up)which depends on consumer preferences. This is where you want to be on the PPF. When the mix of goods being produced along the PPF represents the mix that society most desires.Compare positive v normative statements:- Positive statement: How the world is. Objective and testable.-Normative statement: How the world should be. A standard for one’s society.What is the Law of diminishing Marginal Utility? And how it ties to marginal analysis. - The more of a good that a person receives, the added utility from each additional unit decreases. Marginal analysis: examination of decisions on the margins, meaning a little more little less from the status quo. “Extra amounts” or “increment in”.Lecture 3 (January 20)What is the “Law of Demand”? - When quantity demanded is greater when price is low, and quantity demanded is lower when price is high, or an increase in price will lead to decreased quantity demand, and a decrease in price will lead to increased quantity demand.What does the demand curve show on the production possibility graph?- shows the Quantity demanded for each possible price. Inverse relationship between price and quantity demanded.What are the determinants of demand? - Tastes and preferences, income (normal good/inferior good can come of it), expectations, prices of other goods, number of consumers.- Normal good: as income increases, demand increases and vice versus. -Inferior good: as income increases, demand goes down and vice versus. (ramen-more money not going to buy it that much)-Prices of other goods: substitutes are used when a price of one good goes up then another good’s demand goes up as well and vice versus. Complements are compliments of each other usually (gas and cars).Lecture 4 (January 22)What is supply and the source of supply?-refers to the quantity of a product that producers are willing and able to sell at a given price, ceteris paribus. -The source of supply: Like consumers, producers (sellers, or suppliers) seek to make themselvesas well off as possible.- In general, economists assume that producers maximize profit (π)-.π = total revenue and total costs (profit)What is the “Law of Supply”?- ceteris paribus- when price is low, quantity supplied is low. And when price is high, quantity supply is high. So Price and Quantity supply are positively related. Has to do with incentives!Why is there a positive relationship? Incentives and the law of diminishing returns.Lecture 5 (January 27)What is equilibrium?- The condition of a system (trading in economics) in which all competing influences (Demanders: utility, and Producers: profit) are balanced. If there is equilibrium it will stay in place unless there is an outside force or other factors that affect demand or supply.What is the difference between shortages and surplus?- Shortages: excess demand. At a given price the quality supply is less than the quality demanded. When there is a shortage, people will start bidding on prices. The process is that price increases and causes quantity supply to increase because of incentive, and quantity demand to decrease until price equilibrium is reached.- Surpluses: excess supply. At the given price the quantity supply to more than the quality demanded. You will see that prices will start to go down. At P*, when quality demanded equals quality supply then you reach quality equilibrium.What three factors create efficiency?- Consumer Surplus: when extra satisfaction is given from the demand curve. When you would of paid $80 for something and it was only $40. -Producer surplus.-Total surplus: measure of society’s economic well-being. Add the consumer and producer surpluses together.Lecture 6 (January 29)What is the difference between a shift and movement on the demand or supply curve?- Shift: prompted by previous shifting ex above. The Demand is increased or decreased.-Movement along curve: same curve just moving along it, ex. if price changes. Increase in quantity demanded.Compare the demand shifters v the supply shifters:- Demand shifters: change in: Tastes and preferences, income, expectations, prices of other goods, number of consumers.-Supply shifters: changes in: Natural conditions, Cost (prices of inputs, technology, government taxes, subsidies, regulations…) expectations, prices of other goods, and number of suppliers.What are the two price controllers? Consequences? Explain.- They are something to prevent from prices getting back to equilibrium are price controls. -Price floor: the lowest the price can drop to. Effective (matters/has impact) is that it is above the equilibrium price- creates surpluses. Can lead to more unemployment though. Consequences: artificially high price, quantity demanded decreased, incentive to produce is high  surplus