AGEC 21700 1st EditionFinal Exam Study Guide Lectures: 1 - 25Lecture 1 (January 13)What is economics?The term economics is defined as how societies make decisions and manage during times of scarcity. Everything is scarce at some point in time, and it is because of this that people have to make decisions. Examples of scarce goods are: money, land, tools, and times. Human wants are thought to be insatiable. How can scarcity be combatted?An increase in efficiency can help to combat scarcity. Businesses increase efficiency through specialization. The term specialization was coined by Adam Smith in 1776. It refers to making goods in a faster way and with a lower cost through a gain in knowledge and/or experience. Adam Smith also coined the term economies of scale. This term states that the production scale will increase as average cost of the good decreases. Lecture 2 (January 15)What are the four fields of economics?The four fields of economics are: environmental, inflation/unemployment, economicgrowth/recession, and labor. Microeconomics focuses on environmental and labor issues andindividuals. Individuals make their decisions based on preferences and if it is doable from abudget viewpoint. Macroeconomics focuses on the other two fields. It looks at governmentpolicies: monetary, such as interest rates and fiscal, such as taxes and government spending. What are the three types of economies?There are three types of the economies. The market economy focuses on supply,demand, competition, and decentralized planning. The traditional economy focuses on anindividual/household level, there is no trade and not much growth. The command economyfocuses on a social hierarchy, the planning is done by a leader, and the planning is centralized.Most types of economies are hybrids.Lecture 3 (January 20)What are public goods?Public goods are any goods that the government provides for society. There has been arise in globalization. The direct impact of this is the formation of international trade. Theindirect impact is an expansion of culture and ideas. What is a budget line?Consumers have preferences and budgets while society has technology and rawmaterials. You can build a budget line based on what you want to buy and how much you haveto spend. It is impossible to buy outside the budget line. Anything inside the line is affordablebut wasteful. Therefore the best option is to buy anywhere on the budget line. The slope of thebudget line shows the trade-off: how much of one thing you would have to give up in order toget more of the other good. The slope is always negative and the budget line is always a straightline.Lecture 4 (January 22)What is opportunity cost?The term opportunity cost refers to the cost of what you are giving up to get anothergood. There is always a cost for every decision. Consumers think on the margin: they don’tdecide the total ahead of time. The term utility refers to the value of consumption to theconsumer. The point chosen on the budget line should maximize utility. The sunk cost refers to apaid cost that can never be recovered. Making the best choice has nothing to do with sunk costWhat is a production possibilities frontier?A production possibilities frontier graph can show all possible combinations of goodsthat can be produced with the given resources and technology. The frontier will always becurved and concave in shape. The values will change depending on production. The slope willalso always be negative. The cost is increasing with production, because resources are not easilytransferred from one good to the other. An improvement in technology will only affect one goodand will cause the frontier to rotate out. The shift of the frontier will impact both goods, as nowmore of both goods can be consumed due to an increase in resources. Lecture 5 (January 27)What is production efficiency?It is producing the maximum possible amount of some combination of 2 goods with thegiven technology and resources.What is allocative efficiency?This is producing the best mix of goods and services to make people happy.What is the law of diminishing returns?This says that the marginal value of investing additional resources in an activity decreases. What is the difference between positive and normative analysis?Positive analysis is a description of the world as it is. Normative analysis is a description of whatthe world should be like.Lecture 6 (January 29)What is demand?It is the amount of a good or service that a consumer is willing and able to purchase.What is the definition of a price?It is what the buyer pays for each unit and what the seller receives for each unit.What is the definition of quantity demanded?It is how much the consumer wants and is able to buy at a particular price.What is the law of demand?It is when the price of a good falls (rises) the quantity demanded rises (falls), holding everythingelse constant.What is supply and the law of supply?Supply is the amount of a good or service that each producer is willing to produce at each price.The law of supply says that when the quantity supplied rises, the price rises (and vice-versa).Lecture 7 (February 3)What is a surplus?It is when the quantity supplied is greater than the quantity demanded.What is a shortage?It is when the quantity supplied is less than the quantity demanded. What can cause shifts in the demand curve?This can be caused by changes in income, changes in taste and preference, changes inpopulation, changes in future expectations, and changes in the price of related goods.What can cause shifts in the supply curve?Changes in technology, weather or natural disaster problems, price of inputs, or subsidies cancause this. Lecture 8 (February 5)What are substitutes?These are goods that are not consumed at the same time. For example, coke and pepsi aresubstitutes.What are compliments?These are goods that are consumed together, such as a cell phone and its charger.What are normal and inferior goods?Normal goods are any goods that when a person’s income increases, they want to buy more ofthat good. An inferior good is a good for which demand decreases when income increases,usually because it is of lower quality. Lecture 9 (February 10)What is a price ceiling?It is the maximum price that can be charge in a market. An example of this would be rentcontrol. The price ceiling is always lower than