Econ101 Final Exam study guide PDF

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Final Exam ...

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Final Review Chapter 1     

Microeconomics- within country, sectors Macroeconomics- country level Positive- facts Normative- opinions Economic Perspective o Scarcity and choice o Opportunity cost o Society’s economizing problems o Law of increasing opportunity cost (PPC)  Resources are not completely adaptable to alternative uses  Changes in PPC  Increase in supply of resources  Improvements in resource technology  Technological advances  Calculating opportunity cost  Gain/loss

Chapter 3   

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Demand- how much consumers are willing and able to pay at different prices in a specific time period Supply- how much producers/ suppliers are willing and able to produce/sell at different prices in a specific time period Determinants of Demand (change demand curve) o Prices of related goods (substitutes- positive price elasticity, compliments- neg price elasticity) o Income (normal, inferior) o Number of consumers in market o Tastes and preferences o Expectations about future prices Determinants of Supply (change supply curve) o Technology o Input prices and availability o Prices of substitutes in production o Taxes and subsidies o Expectations o Number of producers in market/sellers Law of demand (shows changes in Qd)- as P increases, Qd decreases/ P decreases, Qd increases

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Law of supply (shows changes in Qs)- as P increases, Qs increases/ P decreases, Qs decreases Market Equilibrium

Chapter 4

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o Rivalry, excludability o Non-rivalry, non-excludability Positive Externalities- results in underproduction, demand side failure o Government provides subsidy so consumer can afford to buy at actual price Negative Externalities- results in overproduction, supply side failure o Government taxes producers

Chapter 6  

Price Elasticity of Demand (always negative) o % change in Qd / % change in P = Ed Price Elasticity of Supply (always positive) o % change in Qs / % change in P = Es

Chapter 9  

Firms earns normal profit when economic profits equal zero Short run production relationships o AP, MP, TP o MP = change in TP o MP hits AP at highest point

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Cost formulas o TC= FC +VC o AFC= TFC/Q o AVC= TVC/Q o ATC=AFC+AVC or TC/Q or TFC/Q + TVC/Q o MC= change in TC/ change in Q or just change in VC/Q

Chapter 10- Pure Competition in short run 

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Demand curve for individual firm is perfectly elastic (straight line) o P=AR=MR o PROFIT MAXIMIZATION when MR=MC Firms short run supply curve (MC curve) starts above AVC curve

Chapter 11- Pure Competition in long run   

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P=MC=min ATC Economic profit=zero in the long run Purely competitive firms are efficient in long run o Allocative efficiency- goods are highly valued by society (assumes productive efficiency) o Productive efficiency- optimizing cost and profit Price will fix to ATC (supply curve)

Chapter 12- Pure Monopoly 

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Five characteristics of a pure monopoly o Single seller o No close substitutes o Price maker o Entry is blocker for other firms o May or may not engage in non-price competition Barriers to entry o ceeeEconomies of scale (natural monopolies) o Legal barriers to entry (patent- usually 20 years, licenses- government issued) o Ownership/control over essential resources o Pricing and other strategic barriers Monopoly Demand o Price will always exceed MR o MR vs TR--------- o Monopolist will avoid inelastic because MR becomes negative and TR decreases PROFIT MAXIMIZATION o MR=MC

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o TR-TC= highest Misconceptions o Goal of monopoly is to maximize profits not per unit profit o Can continue to receive economic profits in long run o Will not charge highest price Market efficiency o Not efficient (allocative or productive) o Dead weight loss  Consumer surplus is not maximized Price Discrimination o Conditions needed  Monopoly power  Firm has to have ability to segregate market (based on finding different demand elasticities)  Consumers cannot resell product between different groups Government Regulation of Monopoly (natural monopolies) o Establish legal price that equal MC “socially optimal price”  Allocative efficiency  Monopolist suffers economic loss o Establish legal price that equals ATC “fair return price”  Monopolist makes normal profits (zero economic profits)  Allocative efficiency not achieved

Chapter 24- International Trade     

Nations have different endowments o Land, resources, labor Different degrees of technology Different preferences (imported vs domestic) Comparative advantage- can produce at lower opportunity cost Absolute advantage- can produce more output of product than another country using same amount of resources...