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ECON 2133: Final review
Resource Allocation |
scarce resource distribution |
No free lunch |
to get one thing, we have to give up another |
equity/efficiency |
equity is how the benefits are divided among society, efficiency is getting the maximum benefits from its scarce resources |
rational decision making |
takes an action if the marginal benefit exceeds the marginal cost |
fixed costs |
stay the same |
variable costs |
subject to change |
benefits of trade |
allows countries to specialize in what they do best and enjoy a greater variety of goods and services
|
market economy
|
firms and households control the market |
Adam smith |
capitalism, "invisible hand" |
externality |
impact of 1 person's action on the well being of a bystander |
Market failure
|
market fails to produce an efficient allocation of resources
|
Opportunity Cost |
what you give up to get that item ex. college athletes who can play professionally |
comparative advantage
|
ability to produce a good at a lower opportunity cost than another producer |
competitive market
|
many buyers and sellers, each has a negligible impact on the market price |
monopoly
|
one seller |
normal good |
increase in income leads to an increase in demand |
inferior good |
increase in income leads to a decrease in demand |
surplus
|
excess suply |
shortage |
excess demand |
substitutes |
increase in the price of one leads to an increase in the demand of another ex. hamburgers and hotdogs |
compliments
|
increase in the price of one leads to a decrease in the demand for the other ex. peanut butter and jelly
|
Variables of demand
|
income, prices of related goods, tastes, expectations, and number of buyers |
variables of supply |
input, technology, expectations, number of sellers |
Supply and Demand change |
shift = change in supply and demand |
Quantity supplied and quantity demanded |
movement= change in quantity supplied and quantity demanded |
law of demand |
price rises, demand falls |
law of supply |
price rises, quantity supplied rises
|