Scantron all multiple choice bring pencils Test Calculator People soft number 35 questions about 5 6 questions per chapter Chapter 5 only about 3 questions Concepts from chapter 1 Definition of economics Economics the social science that studies the choices that individuals businesses governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices 3 fundamental questions of economics How do choices end up determining what how and for whom goods and services are produced Can the choices that people make in the pursuit of their own self interest also promote the broader social interest Difference between macro and micro Microeconomics the study of the choices that individuals and businesses make the way these choices interact in markets and the influence of governments Ex Why are people downloading more movies Macroeconomics the study of the performance of the national economy and the global economy Ex Why is the U S unemployment rate so high Definition of factors of production and the factors of production Factors of production Land the gifts of nature or natural resources Most are renewable energy resources are not Labor the work time and work effort that people devote to producing goods and services Human capital the knowledge and skill that people obtain from education on the job training and work experience Determines quality of labor Capital the tools instruments machines buildings and other constructions that businesses use to produce goods and services Entrepreneurship the human resource entrepreneurs that organizes labor land and capital Land and human capital concepts Land any natural resources Human capital the knowledge and skill that people obtain from education on the job training and work experience Determines quality of labor Assumptions on which micro is built scarcity efficiency Efficiency achieved when the available resources are used to produce goods and services at the lowest possible cost and in the quantities that give the greatest possible value or benefit Equity or fairness whatever is fair No clear definition Scarcity our inability to get everything we want forces us to make choices Concept of opportunity cost opportunity cost the highest valued alternative that must be given up to get it Ex Opportunity cost of being in school is all the goods you can t afford and the time you can t enjoy PPF definition and interpretation of every point on the PPF Chapter 2 Production possibilities frontier PPF the boundary between those combinations of goods and services that can be produced and those that cannot focus on two goods at a time and keep everything else constant Production is possible at any point inside the PPF but some points are an inefficient use of resources Link between PPF and the opportunity cost Opportunity cost the highest valued alternative sacrificed Measured by something that we give up in order to get something else Ex The opportunity cost of producing more pizza is the soda we must sacrifice Opportunity cost is a ratio the decrease in the amount produced of one good divided by the increase in the amount of another good Marginal cost the opportunity cost of producing one more unit of it calculated from the slope of PPF Economic growth and factors that drive economic growth be able to depict points that show economic growth and why Economic growth the expansion of production possibilities increases our standard of living comes from technological change and capital accumulation does not abolish scarcity Technological change the development of new goods and better ways of producing goods and services Accumulation of factors of production the growth of capital labor immigration and population increase land and entrepreneurship education resources including human capital Understanding of gains from trade lemonade stand example Comparative advantage when a person can perform an activity at a lower opportunity cost than anyone else differences arise from differences in individual abilities Absolute advantage what a person has who is more productive than others Two PPFs of two countries or two people or two firms Compute absolute advantage or comparative advantage and compute opportunity cost Producing one more cupcake 0 1 means the opportunity cost of one cupcake is giving up one unit of beer 15 14 Cupcakes 0 1 2 3 4 5 Beer 15 14 12 9 5 0 The opportunity cost of beer is the inverse opportunity cost of a cupcake When graphing use midpoint on x axis Beer Cupcakes Efficient production choice will be 1 on the PPF curve 2 the opportunity cost should equal the opportunity benefit Marginal cost of production Marginal benefit of consumption Chapter 3 Demand and supply definitions Demand something you want can afford and plan to buy causes us to make a decision about our wants refers to the entire relationship between the price of a good and the quantity demanded of it holding all other influences on consumers constant Supply when a firm has the resources and technology to produce a good or service can profit from producing it and plans to produce it and sell it refers to the entire relationship between the price of a good and the quantity supplied of it holding all other influences on producers constant Definition of quantity demanded and quantity supplied Quantity demanded the amount that consumers plan to buy during a given time period at a particular price measured as an amount per unit of time refers to a point on a demand curve Quantity supplied the amount that producers plan to sell during a given time period Difference between demand and quantity demanded between supply and quantity supplied Change in demand along the line change in quantity demanded shift of the line Change in supply along the line change in quantity supplied shift of the line Law of demand and supply Law of demand Other things remaining the same the higher the price of a good the smaller is the quantity demanded and the lower the price of a good the greater is the quantity demanded The relationship is negative or inverse Higher price reduces the quantity because of substitution effect and income effect Law of supply Other things remaining the same the higher the price of a good the greater is the quantity supplied and the lower the price of a good the smaller is the quantity supplied Higher price leads to an increase in quantity supplied because marginal cost increases Factors that shift demand curve Increases if graph