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Econ 101 Study GuideMidterm #1 Study Guide1. Statistical Problems discussed by Darrell Huff - Unrepresentative samples- Small samples sizes- Inappropriate use of mean, median, mode- Gee-whiz graph (visually deceptive or sensationalized graph)- Misleading pictograph- A semi attached figure (a fact or finding that only tangentially relevant to the argument being made)- Post hoc ergo propter hoc#fallacy (inferring a casual relationship from a merecorrelation)- Bell-shaped curve: mean, median, mode almost exact same value(if it doesn’t go below zero the mean is significantly higher)2. Why are all economists in favor of reducing or eliminating farm subsides? - They damage the economy- They are prone to fraud and scandal- They damage the environment- Some farm programs raise food prices and hurt consumers directly- If they ended, U.S. agriculture would continue to thrive- The vast majority go to the largest farms- They transfer earnings of average taxpaying families well-off farm businesses- They are a serious hurdle to progress on global trade agreements that could help productive U.S. exports- They have more stable finances today and are able to better deal with a free-market in agriculture than the past3. Economics: the study of how individuals and society choose to use the scarce resources that nature and previous generations have provided (scarcity & choice)4. Oikonmia: household management5. Why study economics? - To learn a way of thinking- To understand society- To understand global affairs- To be an informed citizen6. Fundamental Problem of Economics: human wants are unlimited, but resources are not7. Three basic economic questions: - What gets produced?- How is it produced?- Who gets what is produced?8. Microeconomics: studies the behavior of decision making units (individual firms/agents, households)9. Macroeconomics: studies the behavior of economic aggregates/ focuses on the national economy and the global economy (income, unemployment, inflation)10.Positive Statements: statements of how the economy does work (scientific data)11.Normative Statements: statements of how economy should work (opinions)12. Economic Model: - Make assumptions- Is a formal statement of a theory- Expressed in words, equations, graphs- Describes relationships between variables of interests- Is an abstraction of simplification of reality13.Ceteris Paribus: all else being equal14.Arithmetic mean: sum of all observations divided by n- House prices we would expect this to be higher than the median15.Geometric mean : the nth root of the product of all the observations16. Correlation: describes a situation in which two variables happen to occur in similar patterns- If an increase in A is associated with an increase in B, then positive corr.- If an increase in A is associated with a decrease in B, the negatively corr.- CORRELATION DOES NOT IMPLY CAUSTATION17. Opportunity Cost: most desirable alternative when the choice is made18.Normal Rate of Return: is the rate of return on a investment that is sufficient to keep owners and investors satisfied (risk- free asset or bond)19.Accounting Costs: explicit costs- Explicit costs: costs for which are countable and are more easily qualified (rent, wages, utilities)20.Economic Costs: explicit costs + implicit costs- Implicit costs: include opportunity costs, harder to count (normal rate of return) always positive- Economic costs >accounting costs21.Total Revenue (TR)= price x quantity22.Accounting Profit= TR- accounting costs23.Economic Profit= TR- economic costs - Accounting profit>economic profit24.Rate of Return: the annual flow of net income generated by an investment expressed as a percentage of the total investment- Rate of return %= (net income generated/total investment) x 10025.Zero Economic Profit: implies positive accounting profit. Companies need this at least to stay in business in the long run26.Absolute Advantage: whoever has the higher-valued intercept for the good in question27.Comparative Advantage: look at the slopes- Steeper slope indicates a comparative advantage in the good on the vertical axis- Shallow slope indicates a comparative advantage in the good on the horizontal axis28.Terms of Trade: the ratio at which goods are exchanged between producers, in order to be beneficial to both parties the terms of trade must be a ratio that lies between their two opportunity cost ratios. Any terms of trade works, both sides benefit.- Affected by: o The relative bargaining power of the two partieso The presence of competition29.Law of Demand: there is a negative relationship between the price of a good and the quantity demanded of that good (demand curves slope downward)- Price of a good increases, fewer units are demanded- Price of a good decreases, more units are demanded30.Law of Supply: there is a positive relationship between the price of a good and the quantity supplied of that good (supply curves slop upward)- Price of a good increases, more units supplied- Price of a good decreases, fewer units supplied31.Market Equilibrium: the condition that exists when quantity supplied and quantitydemanded are equal, or in balance.- At equilibrium, there is no tendency for the market price to change32.Equilibrium Price: quantity supplied equal to quantity demanded33.Excess Demand (shortage): quantity demanded exceeds quantity supplied at the current price (price tends to rise until equilibrium is restored)34.Excess Supply (surplus): quantity supplied exceeds quantity demanded at the current price (price tends to fall until equilibrium is restored)35.Consumer Surplus: the difference between the maximum amount a person is willing to pay for a good and its current price- Ex. Consumers are willing to pay $5 for a hamburger. If the price is only $2.50, consumers receive a consumer surplus of $5-$2.50= $2.5036.Total Consumer Surplus: the area below the demand curve and above the price level37.Producer Surplus: the difference between the minimum amount a producer is willing to accept to supply a good and its current market price- Ex. Producers are willing to accept as little as 75 cents for hamburgers. Since the price is $2.50, they receive a producer surplus of $2.50-$.75= $1.75 per hamburger38.Total Producer Surplus: the area above the supply curve and below the price level39.Social Welfare: the sum of consumer and producer surplus is highest

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UO EC 101 - Study Guide

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