Search for notes by fellow students, in your own course and all over the country.
Browse our notes for titles which look like what you need, you can preview any of the notes via a sample of the contents. After you're happy these are the notes you're after simply pop them into your shopping cart.
Title: Microeconomics
Description: A study guide for a beginner college level Microeconomics course. Combines study guides from the midterm and final exams. Well organized, detailed, and easy to understand.
Description: A study guide for a beginner college level Microeconomics course. Combines study guides from the midterm and final exams. Well organized, detailed, and easy to understand.
Document Preview
Extracts from the notes are below, to see the PDF you'll receive please use the links above
(Final Exam is on page 11) 1
Microeconomics Exam One Study Guide
(Spring 2015)
Test Consistency
1
...
Feel free to add input
or mark things that you feel will be more important or specifically on the test
...
Economics
The study of choices made by individuals given scarcity
How markets coordinate those choices
How governments influence those choices
And the unintended consequences of those choices
The Circular Flow
A visual model of the flow of goods/services and money in the economy
Two types of Economic “Actors
”:
1
...
Firms
Two Types of Markets:
1
...
The market for “factors of production” (Ex: Labor)
Factors of Production
Inputs into the production possible
1
...
Labor (Natural)
3
...
Entrepreneurship (Bringing everything together)
Assuming households own factors of production that firms buy
Firms produce, households buy
Income = Expenditures
Allocation of Scarce Resources
(Options to solve economic problem):
1
...
Market Socialism
Economy Coops; FOP owned by the state with more business input
3
...
Corporation
Bringing common interest into corporate groups; classifying
5
...
Those who meet the most valued unmet needs and wants of society are awarded
the most
...
Entrepreneurs
Drive the discovery process of the market with their active choices to satisfy consumer
demands; Driven by profitseeking; Create and discover new knowledge
Economies need to adapt to charging conditions to remain efficient however, change requires knowledge
which is dispersed
Two Types of Knowledge:
1
...
Local Knowledge
Knowledge of time and place; Street knowledge
How is this knowledge coordinated?
Market prices arising from voluntary exchange
Market prices coordinate activity by:
1
...
Incentivizing effective adjustments from consumers and producers
3
...
Voluntary Exchange (encourage cooperation within the market)
2
...
People face tradeoffs (because of scarcity)
2
...
Rational people think at the margin (weighing cost versus benefit)
4
...
Voluntary exchange creates value
6
...
Institutions matter Institutions are the “rules of the game” that structure social interaction
Good Institution Incentives socially useful behavior; Encourages entrepreneurial
discovery
Bad Institution Encourages zero sum environment
(Final Exam is on page 11) 4
8
...
Opportunity Cost
2
...
Economic Growth
Points on the line are possible and efficient
Under the line is possible
because the economy has the resources and technology to
produce more
but not efficient
because not all of the resources or available technology is
employed by the economy
Above the line is not possible
The Production Possibility Frontier and Opportunity Cost
There is a constant opportunity cost, one for one trade off, represented by straight line
Varying opportunity cost represented by a bow shape
Why variations?
Resources have different values in production
Workers have different skill set
Farmland and coastal areas
Engineers and artist
Moving Along the PPF
Involves shifting resources between the production of goods and services
Society faces a tradeoff in production
The Slope of the PPF shows the opportunity cost of one good in terms of the other
With additional resources or technological improvement, the economy can produce more
Economic growth shifts the PPF outwards
Patterns of Production and Trade
Individuals can satisfy their wants and desires by being selfsufficient and interdependent
People are rewarded when they:
1
...
Trade what others want with others for things they need
In 1820, 968 hours produces $1
...
59 goods/services per person
(Final Exam is on page 11) 5
Absolute Advantage
The ability to produce more of a good using the same amount of resources as
someone else ( Producer can have this in all goods)
Comparative AdvantageThe ability to produce a good at a lower opportunity cost than someone else
(Cannot have this in all goods)
If you could, limited reasons to trade
Sources: Different technologies, different endowments, different taste
If a country has absolute advantage in producing goods and services, they can still benefit from trade
Voluntary trade is positive sum game
Gains from specialization are based on comparative advantage not absolute advantage
Cheaper to trade, based on opportunity cost
Unless both parties have the same opportunity cost, each party will have a comparative
advantage
Individuals have different taste
In order for both parties to be better off the price of trade must lie between the opportunity cost
Law of Demand
The quantity demand of a good decreases when the price of a good increases
...
Consumer Income
a
...
Inferior good
when income increases demand decreases
2
...
Substitute good
when the price of one good increases, the demand for
another good will increase
...
Compliment good
Of the price of one good increases, and you buy less
of the other good
3
...
Expectations of future price change
5
...
Input Prices As the cost of an input good increases, supply decreases
...
The relative price of an alternative good Example: A farmer choosing between
planting soybean or corn
3
...
Expectations Expecting price to increase leads to an increase in supply
5
...
Shortage
Quantity demanded exceeds supply
If prices are allowed to adjust, shortages and surpluses are temporary
Prices not in the equilibrium lead to shortages and surpluses
No Change in Supply
An Increase in Supply
A Decrease in Supply
No Change in Demand
P Same
Q Down
P Down
Q Up
P Up
Q Down
An Increase in Demand P Up
Q Up
P Ambiguous
Q Up
P Up
Q Ambiguous
A Decrease in Demand
P Down
Q Ambiguous
P Ambiguous
Q Down
P Down
Q Down
Norway's Butter Shortage:
A new “lowcarb” diet that emphasizes a higher intake of fat
A wet summer reduced the quantity of animal feed and cut milk production
...
The Price Elasticity of Demand
2
...
The Price elasticity of supply
4
...
The Midpoint Method nd Value Start Value 100
E
Midpoint (Avg
...
Availability of substitutes
2
...
Type of good Ex: luxury versus necessity
4
...
Proportion of your budget
(2)Price Elasticity of Demand and Revenue
Total Revenue = Price x Quantity
A price increase has two effects on revenue:
Price Effect
More revenue is created with raised prices;
Inelastic good
Quantity Effect
Raised prices means selling less, therefore revenue falls;
Elastic good
(3)Price Elasticity of Supply
Elasticity of Supply
Measures how much quantity supplied responds to a change in price
(Final Exam is on page 11) 8
Percentage change in Quantity Supplied
Percentage change in Price
Inelastic Supply
Elasticity of supply is less than one ( Es < 1 )
Quantity and price supplied move the same proportions
Elastic Supply
Elasticity of supply is greater than one ( Es > 1 )
Suppliers have a low sensitivity to price
Unit Elastic Supply
Elasticity of supply is equal to one ( Es = 1 )
The price sensitivity of sellers supply
Suppliers have a high sensitivity to price
The quicker a supplier is able to change production, the more elastic supply is
...
Ex: New Jersey prices during Hurricane Sandy
...
According to seller’s biases
2
...
Equal share for all
4
...
First come, first serve
6
...
Unknown
As with all other study guides I have created, this is mostly just my notes typed up
...
Good Luck!
TERMS;
FORMULAS; IMPORTANT; UIZ ANSWERS
LIST;
;
Q
Total Revenue
The amount a firm receives for the sale of its output
Total Cost
The market value of the inputs a firm uses in production
Profit
Total revenue minus total cost; Price is greater than average total cost
Loss/ Negative profit If price is less than average total cost
Explicit Cost
Input cost that require an outlay of money by the firm
Implicit Cost
Input cost that do not require an outlay of money by the firm
Economic Profit
Total revenue minus total cost, including both explicit and implicit cost
Accounting Profit
Total revenue minus total explicit cost
Production Function
The relationship between quantity of inputs used to make a good and the quantity
of output of that good
Marginal product
The increase in output that arises from an additional unit of input
Diminishing Marginal Product
The property whereby the marginal product declines as the quantity of
the input increases
Fixed Cost
Costs that do not vary with the quantity of output produced
The Average Fixed cost is lower with greater quantity
Variable Cost
Costs that vary with the quantity of output produced
(Final Exam is on page 11) 12
Marginal Cost
The increase in total cost that arises from an extra unit of production
The change in cost by producing one more
The curve is the same as the supply curve
If a firm cannot cover the marginal cost, it cannot supply product
The MC curve determines how much the firm is willing to supply at any price
Efficient scale
Quantity of output that minimizes average total cost
Economies of Scale
The property whereby longrun average total cost falls as the quantity of output
increases; Long run ATC rises as Q decreases
Diseconomies of Scale
The property whereby longrun average total cost rises as the quantity of output
increases
Constant returns to scale
The property whereby longrun average total cost stays the same as the
quantity of output changes
ShortRun May have some fixed cost
Shutdown
Short term decision to cease product
Examples: Closing at night or closing for a season
When: If variable cost is greater than total revenue (TR < VC); Close if profit is less than
average variable cost
The market supply slopes upwards and is the summation of each firm's supply
LongRun Has all cost as variables
The number of firms varies
If a firm makes a profit, new firms will enter
The process continues until firms make zero economic profit
The market supply is perfectly elastic at the minimum ATC
Exit
Long run decision to leave the market
When: If total revenue is less than total cost or if price is less than average total cost
Rules of Profit Maximization
1
...
Marginal Revenue = Marginal Cost Firms should stay
Perfect Competition Characteristics
1
...
The goods affected for sale are largely the same (homogeneous)
3
Title: Microeconomics
Description: A study guide for a beginner college level Microeconomics course. Combines study guides from the midterm and final exams. Well organized, detailed, and easy to understand.
Description: A study guide for a beginner college level Microeconomics course. Combines study guides from the midterm and final exams. Well organized, detailed, and easy to understand.