UB ENG 101 - final review (7 pages)

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final review



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final review

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Pages:
7
School:
University at Buffalo-SUNY
Course:
Eng 101 - Writing 1
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Review Sheet Reread chapter 1 up to pg 11 as it is a good review Economics Study of how scarce resources are allocated among competing uses When making a decision we only consider the marginal cost of that decision not the sunk costs We will chose to do something as long as the marginal cost is less than the marginal benefit Opportunity Cost measures the best alternative forgone when making choices Economic reality is not only controlled by economic forces but by social and political forces as well Macroeconomics study of economic aggregates such as national production and the price level Microeconomics the study of the behavior of individual consumers and producers operating in the individual markets of the economy Production Possibilities Frontier Shows boundary between combination of goods an economy can produce and those it can not Shape of Curve 1 Negative slope to produce more of one good an economy must produce less of the other good if it is producing efficiently 2 Curved shape Opportunity cost of producing more of one good increases as you produce more of it because resources are specialized PPF will shift out if there are changes in either technology or available resources Absolute advantage is when a country produces a good using the minimum quantity of inputs Comparative Advantage the ability to be better suited to production of one good than to the production another good This happens when they can produce a good at the lowest opportunity cost Due to comparative advantage counties will tend to specialize in the production of goods over which they have comparative advantage All countries will benefit from trade Countries will trade even if one country has absolute advantage in all goods Although the U S has benefited greatly from globalization due to increased markets for their products and cheaper prices for all goods there have been some costs involved including losses in jobs and increased competition for domestic companies Role of Government The government plays a role whenever there are market failures ie the market does not provide the most efficient solution 1 correcting for externalities 2 reducing market power 3 proving public goods The operations of the economy can be depicted by the circular flow diagram which represents the three sectors of the economy households firms and the government that interact in the goods and factor markets Businesses can be sole proprietorships partnership or corporations depending on the amount of control and or liability they desire Households are both suppliers in the factor market and demanders in the goods market The Government plays both the role of actor by participating in the economy and refereed by setting rules and regulations Demand curve shows the quantities of a good a consumer is willing and able to buy at alternative prices given tastes incomes related prices and number of buyers Law of demand increase in price causes a decrease in quantity demand movement along the curve Change in other factors income tastes price of substitutes price of complements causes a change in demand a shift right or left of the demand curve Supply Curve a curve which shows the quantities of a good a seller is willing and able to sell at alternative prices at a given cost of production determined by input prices and technology and number of sellers Law of Supply Increase in price causes increase in quantity supplied movement along the supply curve Change in cost of production alters planned sales at all prices shifting curve to the right or left Also a change in number of suppliers technology will also shift curve If there is an increase in supply the amount supplied at all prices is greater the supply curve shifts right Equilibrium Equilibrium is when price is set where quantity demanded quantity supplied Thus the market will provide the most efficient solution if it is left alone however this is not always the most equitable solution A change in equilibrium will arise when there is a shift of either the demand or supply curve If P Pe surplus If p pe shortage Price and Quantity will change if either supply or demand change If both demand and supply change at the same time the results are often ambiguous ie if supply and demand both increase quantity will increase but the change in price is ambiguous Policies that affect operation of markets Price controls If price is set above equilibrium price such as minimum wage price floor this will lead to surplus If price must be below equilibrium price price ceiling such as with rent control this leads to shortages This will also reduce in reduce quality of the product as well The more elastic is supply and demand the greater the effect of these price controls Excise Taxes affect the market but shifting the supply curve and resulting in a higher price for the consumer and a lower price received by the producer Thus the burden of the tax is generally shared However the burden is greater consumers the more inelastic demand is relative to supply Elasticity Elasticity of Demand Price elasticity of demand measures the responsiveness of the quantity demanded to the price of the goods Ep change in demand change in price change in Q Qmidpoint change in Price Pmidpoint If demand is elastic ie 1 this means that demand is sensitive to changes in the price for example cars restaurants A price increase will lead to a decrease in revenues If demand is unit elastic 1 demand is neither sensitive nor not sensitive to change int its price A price increase doesn t change revenues If demand is inelastic ie 1 Demand for the good is not very sensitive to price changes is necessities addictive goods IF price rises revenues will increase The more elastic is demand the flatter the demand curve isHave two extremes perfectly inelastic perfectly elastic ex Demand for insulin perfectly competitive market Elasticity depends on three factors 1 substitutability the more readily other goods can be substituted the larger is the elasticity of demand 2 proportion of income spent the higher the proportion of income spent the larger is elasticity 3 Time frame for demand the more time has elapsed the larger is the elasticity of demand since it takes time to gather information about substitute goods and change tastes thus the short run demand curve which shows change in demand right after price change is more inelastic and thus steeper than the long run demand curve which shows change in demand after a longer period of time Income


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