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Econ 142 - Flashcards

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Class:ECON 142 - Principles of Microeconomics
Subject:Economics
University:University of Kansas
Term:Fall 2013
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Opportunity Cost The value of the thing you didn't do. (The next best alternative) 
Market Economy An economy governed by the tastes of citizens. 
Centrally Planned Economy An economy controlled by a central authority. (Government) 
Economics How people make decisions with scare supplies
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MacroEconomics Big picture. Deals with things like GDP, inflation, and unemployment. 
MicroEconomics Deals with individuals. One person, one firm. 
Margin One small increment
Positive statement of fact 
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Normative Involves some sort of opinion 
Allocative Efficiency Producing what satisfies a need. It's the right thing at the right time. 
Productive Efficiency Doing things in the right way, at the lowest production cost. 
Market A set of buyers and sellers
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Law of Demand If the price is high, consumers buy less. If the price is low, consumers buy more. There is a negative relationship between price and quantity demanded. (Demand shifts downward) 
Normal Good If there is more income, more of this good is bought 
Inferior Good If there is more income, less of this good is bought
Compliments Things we buy together. 
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Substitutes If we buy one we don't buy the other. (Coke and Pepsi) 
Law of Supply If the price goes up, the quantity supplied goes up. Upward sloping curve. 
Equilibrium When the quantity demanded equals the quantity supplied. We are always trying to move towards this. 
If the price of the good changes, what movement occurs? (Demand) We move ALONG the curve
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If something changes that isn't the price, what movement occurs? (Demand) A shift in the whole curve 
What five things cause a shift in the Demand Curve? -Tastes and Preferences 
-Income 
-A change in the price of a related good. (Substitute/ Compliment) 
-Change in expectations 
-Populations and Demographics 
Ceteris Paribus All else is held equal 
Substitution Effect If the price of a good goes down, you have more money to purchase more of that good. 
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Income Effect If the price of good A goes down, the consumer has more money. Instead of buying more A, the consumer buys B instead. 
Change in Income Causes the DEMAND curve to shift. (Normal Goods and Inferior Goods) 
Change in the Price of Related Goods Causes the DEMAND curve to shift. (Substitutes and Compliments) 
Tastes and Preferences Causes the DEMAND curve to shift. If something becomes popular, demand increases and shifts to the right. 
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Change in Expectation Causes the DEMAND curve to shift. If you think the price will get higher in the future, demand shifts to the right. If you think the price will be lower in the future, demand shifts left. 
Causes the SUPPLY curve to shift. If suppliers think the price will be higher in the future, they will supply less today. If suppliers think the cost will be lower in the future, they will supply more today.
Population Demographic "number of buyers" 
Supply shifts up or down? Up.
Demand shift up or down? Down. 
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What are the five things that shift the Supply Curve -A Change in Technology 
-A Change in the Price of an Input 
-A Change in Expectation 
-Number of Sellers 
-A Change in Substitutes 
Change in Technology If there is a positive technological breakthrough, more of a good will be supplied. (Shift Right) 
 If there is a problem with production (factory blows up), less of a good will be supplied. (Shift left) 
Change in the Price of an Input If the price of corn goes up, and you produce corm muffins, you will supply less corn muffins. 

Number of Sellers More sellers, more production, shift right. 
Less sellers, less production, shift left. 
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Change of Substitutes There is a farmer who grows potatoes. Lately wheat has become more expensive, giving wheat farmers more money, the potato farmer will switch to growing wheat, making the supply of potatoes shift to the left. 
If the Demand Curve and the Supply Curve move in the same direction, what do you know? The quantity, but not the price. 
If the Demand Curve and the Supply Curve move in opposite directions, what do you know? The price, but not the quantity. 
Equation of a Line


P= a - b*Q 


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Deadweight Loss

the reduction in economic surplus that results when the market isn’t efficient 

Economic Surplus In mainstream economics, economic surplus) refers to two related quantities.
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 Opportunity CostThe value of the thing you didn't do. (The next best alternative) 
 Market EconomyAn economy governed by the tastes of citizens. 
 Centrally Planned EconomyAn economy controlled by a central authority. (Government) 
 EconomicsHow people make decisions with scare supplies
 MacroEconomicsBig picture. Deals with things like GDP, inflation, and unemployment. 
 MicroEconomicsDeals with individuals. One person, one firm. 
 MarginOne small increment
 Positivestatement of fact 
 NormativeInvolves some sort of opinion 
 Allocative EfficiencyProducing what satisfies a need. It's the right thing at the right time. 
 Productive EfficiencyDoing things in the right way, at the lowest production cost. 
 MarketA set of buyers and sellers
 Law of DemandIf the price is high, consumers buy less. If the price is low, consumers buy more. There is a negative relationship between price and quantity demanded. (Demand shifts downward) 
 Normal GoodIf there is more income, more of this good is bought 
 Inferior GoodIf there is more income, less of this good is bought
 ComplimentsThings we buy together. 
 SubstitutesIf we buy one we don't buy the other. (Coke and Pepsi) 
 Law of SupplyIf the price goes up, the quantity supplied goes up. Upward sloping curve. 
 EquilibriumWhen the quantity demanded equals the quantity supplied. We are always trying to move towards this. 
 If the price of the good changes, what movement occurs? (Demand)We move ALONG the curve
 If something changes that isn't the price, what movement occurs? (Demand)A shift in the whole curve 
 What five things cause a shift in the Demand Curve?-Tastes and Preferences 
-Income 
-A change in the price of a related good. (Substitute/ Compliment) 
-Change in expectations 
-Populations and Demographics 
 Ceteris ParibusAll else is held equal 
 Substitution EffectIf the price of a good goes down, you have more money to purchase more of that good. 
 Income EffectIf the price of good A goes down, the consumer has more money. Instead of buying more A, the consumer buys B instead. 
 Change in IncomeCauses the DEMAND curve to shift. (Normal Goods and Inferior Goods) 
 Change in the Price of Related GoodsCauses the DEMAND curve to shift. (Substitutes and Compliments) 
 Tastes and PreferencesCauses the DEMAND curve to shift. If something becomes popular, demand increases and shifts to the right. 
 Change in ExpectationCauses the DEMAND curve to shift. If you think the price will get higher in the future, demand shifts to the right. If you think the price will be lower in the future, demand shifts left. 
Causes the SUPPLY curve to shift. If suppliers think the price will be higher in the future, they will supply less today. If suppliers think the cost will be lower in the future, they will supply more today.
 Population Demographic"number of buyers" 
 Supply shifts up or down?Up.
 Demand shift up or down?Down. 
 What are the five things that shift the Supply Curve-A Change in Technology 
-A Change in the Price of an Input 
-A Change in Expectation 
-Number of Sellers 
-A Change in Substitutes 
 Change in TechnologyIf there is a positive technological breakthrough, more of a good will be supplied. (Shift Right) 
 If there is a problem with production (factory blows up), less of a good will be supplied. (Shift left) 
 Change in the Price of an InputIf the price of corn goes up, and you produce corm muffins, you will supply less corn muffins. 

 Number of SellersMore sellers, more production, shift right. 
Less sellers, less production, shift left. 
 Change of SubstitutesThere is a farmer who grows potatoes. Lately wheat has become more expensive, giving wheat farmers more money, the potato farmer will switch to growing wheat, making the supply of potatoes shift to the left. 
 If the Demand Curve and the Supply Curve move in the same direction, what do you know?The quantity, but not the price. 
 If the Demand Curve and the Supply Curve move in opposite directions, what do you know?The price, but not the quantity. 
 Equation of a Line


P= a - b*Q 


 Deadweight Loss

the reduction in economic surplus that results when the market isn’t efficient 

 Economic SurplusIn mainstream economics, economic surplus) refers to two related quantities.
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