Chapter 1 would like 1 Understand what scarcity is Scarcity is when there is less of a good available than people 2 Understand the 8 guideposts to economic thinking Basic economic way of thinking 3 Understand Positive vs Normative economics Positive economics is factual scientifically testable Normative is opinionated not testable 4 Understand the 4 pitfalls to avoid in economic thinking 1 Violation of ceteris paribus all things constant Ex gas prices 2 The belief that good intentions guarantee desirable outcomes 3 The belief that association is causation Ex sweater and hot chocolate 4 Fallacy of composition belief that what is true for one might be true for all Ex standing at a football game Chapter 2 1 Understand the concept of opportunity cost The choice of highest value that is given up 2 Know how trade creates value and leads to economic progress Because the value of goods is subjective voluntary trade creates value How 1 When voluntary both parties are better off 2 By channeling goods and resources to those who value them most trade creates value and increases the wealth crated by a society s resources Trade leads to economic progress by 1 Gains from specialization and division of labor 2 Gains from mass production methods 3 Gains from innovation 3 Know what the incentives of property rights are 1 Incentive to use resources in ways that are considered beneficial to others Owners bear the costs of ignoring wishes of others Ex restaurant and its colors 2 Private owners have an incentive to care for and manage what they own Ex rental car vs own car 3 Private owners have an incentive conserve for the future Ex Popcorn at the movies 4 Private owners have an incentive to make sure their property does not damage your property Ex Dog on leash 4 Be able to read a PPC graph and identify the points No problem 5 Know the factors that shift the PPC curve 1 A change in the economy s resource base Ex investing 2 Changes in technology Ex finding ways to drill more oil via better technology 3 Change in the rules under which the economy functions Ex development of a system of patents 4 Changes in work habits Ex working harder shifts outward and working less shifts inward 6 Understand the law of comparative advantage The total output of a group of individuals an entire economy or group of nations will be greatest when the output of each good is produced by whoever has the lowest opportunity cost Ex Lebron house cleaning Chapter 3 1 Know why supply curve is upward sloping and demand curve is downward sloping The Demand curve is downward sloping due to an inverse relationship between the price and quantity that buyers are willing to purchase law of demand The Supply curve is upward sloping as a result of a direct relationship between the price and amount that suppliers are willing to produce law of supply 2 Be able to find producer and consumer surplus CS area below demand curve but above price PS area above supply but below price 3 What are the shifters of demand 1 Change in consumer income Ex As income increases you buy more of normal goods steak than inferior goods ramen noodles 2 Change in the of consumers Ex Gasoline 3 Change in the price of a related good Ex substitutes beef and chicken and compliments cereal and milk 4 Change in expectations Ex Expected change in price and income 5 Demographic changes Ex more old ppl more health care 6 Change on consumer tastes and preferences Ex Hula Hoop 4 What are the shifters of supply 1 A change in resource price Ex leather jackets 2 A change in technology Ex the printing press 3 Changes in nature and politics Ex Crop freeze legalization of weed 4 Changes in taxes Ex Tanning tax 5 Know the characteristics of market equilibrium In market equilibrium 1 all trades that generate more benefit than costs are undertaken 2 no trades where costs exceed benefits are undertaken 3 the combined area of consumer and producer surplus is maximized Market equilibrium is economically efficient 6 Be able to do single and double shifts of demand and supply curves No problem 7 Know the invisible hand principle Got em Chapter 4 Chapter 5 1 Understand why labor demand is downward sloping Labor demand curve is downward sloping because as wage decreases firms will want to employ more people 2 Understand why labor supply is upward sloping Labor supply curve is upward sloping because as wage increases people want to work more 3 What are the effects of price ceilings and price floors A PF is a legally established minimum price buyers must pay for a good resource A PF is above equilibrium price and creates a surplus A PF below equilibrium price does nothing A PC is a legally established maximum price sellers can charge for a good or resource A PC below market equilibrium price creates a shortage A PC above equilibrium price does nothing 4 What is the impact of a tax THERES A SHIT LOAD OF TAX INFO JUST READ THROUGH IT 5 Calculate average tax rate and marginal tax rate ATR tax liability taxable income MTR change in tax liability change in taxable income 6 Understand the Laffer Curve It s a curve illustrating the relationship between the tax rate and the tax revenue Higher tax rates will not always lead to more tax revenue 7 Understand the impacts of a subsidy A subsidy is a payment the government makes to either the buyer or seller when a good or service is purchased or sold Subsidies are costly 1 What do we mean by economic efficiency To be economically efficient 1 all actions generating more benefits then costs should be undertaken 2 no actions generating more costs then benefits should be undertaken 2 What are the two roles that the government should play in the market The government should 1 Protect individuals and their property rights 2 Provide goods that could not be easily provided by the market overcome market failure 3 Know the 4 types of market failure 1 Lack of competition with no competition a firm can hold back production and raise price 2 Externalities the effects of an activity that influence the well being of non consenting third parties 3 Public goods non rival in consumption and non excludable 4 Lack of information 4 Understand the concept of externalities Positive externality consumer bears the cost everybody gains the benefit Ex vaccinations Negative externality producer gains the benefit everybody bears the cost Ex loud music 5 Understand the characteristics of public goods 1 Non rival in consumption making the good available to one another does not reduce
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