Exam (elaborations)
ECO2013 (1)
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Exam of 5 pages for the course Macro Hammock at Macro Hammock (ECO2013 (1))
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ECO2013Scarcity - ANS-Things/stuff is limited/finite.
Choice - ANS-We have to choose somethings because we cannot choose everything.
Opportunity cost - ANS-The value of the best thing given up.
Rational Self-interest - ANS-It is a useful assumption and often true.
Positive Economics - ANS--"The way the world is"
-Correlation
Negative Economics - ANS-"The way the world ought to be"
-Causation
Simple Trade - ANS-Voluntary Exchange creates value
Production Possibilities Frontiers - ANS-Is a curve depicting all maximum output possibilities for
two goods, given a set of inputs consisting of resources and other factors.
The Law of Demand - ANS-As the price of a good rises, the quantity demanded falls.
The Law of Supply - ANS-As price rises, the quantity supplied rises.
Change in Demand - ANS-A shift in the demand curve.
Change in quantity demanded - ANS-Movement along the curve.
Things that can shift demand: - ANS-Changes in product quality (or information), changes in
income, changes in prices of substitutes and/or complements, natural disasters, changes in
expectations, changes in tastes and preferences, changes in demographics (i.e. population)
Change in supply - ANS-Is caused by one of the other factors affecting supply, and is
represented by a shift to a new supply curve.
Change in quantity supplied - ANS-Is caused by a change in price, and is represented by
movement along the supply curve.
Things that can shift supply: - ANS-Changes in input prices (i.e. labor, capital, land,
resources...), Taxes & Regulation & Subsidies, Entry or exit of firms, changes in technology,
changes in expectations and information, acts of nature/war etc.
, What if both curves move? - ANS-Consumer and Producer Surplus
Total surplus - ANS-Consumer surplus (+) Producer surplus
Price Controls - ANS-Government-imposed restrictions on market prices.
Price Ceilings - ANS-A maximum legal (allowed) price.
Price Floors - ANS-A minimum legal (allowed) price.
Shortage - ANS-Binding price ceilings create shortages.
Surplus - ANS-Binding price floors create surpluses.
Deadweight Loss - ANS-Lost consumer and producer surplus. *Inefficiency*
Elasticity of Supply and Elasticity of Demand Taxes - ANS-1) The burden of a tax is the
deadweight loss.
2) The burden of a tax is not determined by the legal assignment.
3) The burden of a tax is determined by the relative elasticities of supply and demand.
Market Failure - ANS-People pursuing their self-interests lends to an outcome the is collectively
irrational or inefficient.
Monopoly - ANS-There is only one producer/seller or a product
Public Goods - ANS-Nonrival- My consumption doesn't reduce the amount available to you.
Nonexcludable- People who don't pay cannot be stopped from consuming the good. Ex:
National Defense
Externalities, positive & negative - ANS-Occur when one person's actions affect a third party.
The Tragedy of the Commons - ANS-Every individual tries to reap the greatest benefit from a
given resource. When a resource is unknown, or owned in common, it tends t be overused. (i.e.
Public Bathrooms, Fisheries, common grazing fields, etc.)
The Tragedy of the Anticommons - ANS-Occurs when there are too many people with the power
to say "no" to the use of a resource. (i.e. Patent trolls & patent thickets, Russian Shopping
malls)
Information Problems - ANS-When one party to a transaction has trouble finding the truth. (i.e.
Used car sales, Education Signaling)
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