Microeconomics: Supply and Demand and Quantity Essay

Submitted By JessicaRutley
Words: 3946
Pages: 16

Economics 1000-C
Chapter 1
Scarcity: the limited nature of society's resources
Economics: the study of how people, firms, and society manages their resources
Marginal Benefit: What you earn
Marginal Cost: what you give up
Sunk Cost: Spending $10,000 on x does not affect whether or not I do y because x was yesterday’s problem. What happens in the past is irrelevant
Incentive: Something that induces a person to act. ie. The prospect of a reward or punishment. The point of taxes is to alter your behavior. Ex. High tax on smokes to reduce sale.
Trade can make everyone better off
Instead of relying on me, I can focus on producing one good thing and exchange it for another
Countries also benefit from trade and specialization
Everyone does what they’re good at thus creating trade in the world. Plumber fixes pipe, dentist fixes teeth, etc…
Markets Are A Good Way to Organize Economic Activity
Market: a group of buyers and sellers (need not be in a single location)
Market Failures: when the market fails to allocate society’s resources efficiently.
Ex. Housing Cash

When the production or consumption of a good affects bystanders (eg. Pollution)
Positive Externalities
University, well educated people
Getting the flu shot
Market Power: a single buyer or seller has substantial influence on market price (eg. Monopoly)
Government puts extra taxes on bad things to keep the population away from them while they won’t tax good things as much to allow people to obtain them.
Equality Argument: extra taxes on rich to allow equity. Sometimes causes negative effects
Countries standard living depends on their ability to produce goods and services
Productivity depends on their skill level, coworkers, education, etc…
Inflation: increases in general level of prices
Society faces a short-run trade-off between inflation and unemployment

Chapter 2
The Invisible Hand: the market working on its own to allow an efficient outcome
Assumptions: simplify the complex world, make it easier to understand
→Unrealistic, but simple to learn and give useful insight
Efficiency: decisions based on the limited amount of resources possessed (How much can be made?)
Equity: How much I get (How do I share?)
The Production Possibility Frontier (PPF)
The PPE: a graph that shows the combinations of output that the economy can possibly produce to available factors or production technology
Why Might the PPF be Bow-Shaped?
As economy shifts resources from beer to mountain bikes:
PPF becomes steeper
It’s bowed because people aren’t as good making one product as the other. Opportunity cost becomes greater
Micro: the study of how households and firms make decisions and how they interact in markets
Macro: the study of economy-wide phenomena, including inflation, unemployment, and economic growth
Propositions About Which Most Economists Agree (In Textbook)
Positive Statements: claims that attempt to describe the world as it is
Normative Statements: claims that attempt to prescribe how the world should be

Chapter 3
Export: goods produced domestically and sold abroad
Import: goods produced abroad and sold domestically
Canadian Consumption with Trade Japanese Consumption with Trade
ExportedAmount Consumed
Absolute Advantage: the ability to produce a good using fewer inputs than another producer
Canada has an absolute advantage in wheat; 10 in Canada vs. 25 in Japan
If Canada is better in both why trade?
Comparative Advantage: the ability to produce a good at a lower opportunity cost than another producer
Japanà 1 computer = 5 tonnes of wheat ßLower Opportunity cost
Canada à 1 computer = 10 tonnes wheat
Japan = comparative advantages in computer, not absolute advantage
Canada= absolute advantage in wheat
Trade allows the amount or product to increase. Trade allows Canada to obtain more computers.
1 computer=7.5 tonnes of