ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 economics social science that studies the choices we make as we cope with sc arcity and the incentives that influence and reconcile our choices. scarcity available resources are insufficient to satisfy wants 4 categories of resources land labor capitol entrepreneurship incentive reward ot penalty that encourages or discourages an action positive analysis factual normative analysis judgement opportunity cost value of best alternative sunk cost inevitable/irreversible cost ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 marginal benefit (MB) benefit of one additional unit of a good MB decreases as Q increas es marginal cost (MC) cost of an additional unit MC increases as Q increases absolute advantage produce more in same amount of time OR produce same in less ti me comparative advantage produced at lower cost 2 rules of advantage 1) If one person has comparative advantage in one task, the other will have comp advantage in other task. 2) NO ONE can have comp advantage in everything. production possibility frontier (PPF) graph of maximum output that can be produced characteristics of individual PPF 1) negative slope 2) magnitude of the slope reflects the MC of "x" characteristics of economy-wide PPF 1) negative slope 2) maginitude of slope reflects MX of "x" 3) slope gets steeper as "x" increases ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 production efficiency produce combination of goods at lowest cost allocative efficiency resources are used where they are most highly valued shift in PPF anything that changes either the level of resources OR anything tha t changes the productivity of resources demand maximum quantity a consumer is willing and able to purchase at va rious prices law of demand as Q increases, D decreases and vice versa changes in demand 1) changes in income 2) change in prices of "related goods" 3) chan ges in expectations 4) change in # buyers 5) changes in tastes or p references normal good good where D rises when income rises and D falls when income fall s inferior good good where D rises when income falls and D falls when income rise s (ex. Ramen noodles) ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 substitutes in consumption goods that are used in place of one another (ex. Thin Mints and Ore os) compliments in consumption goods that are used together )ex. milk and cookies) supply maximum quantity a seller is willing and able to sell at various pric es law of supply positive relationship between price and quantity supplied changes in supply 1) change in input prices 2) change in prices of related goods 3) ex pectations 4) change in # of sellers 5) change in technology substitutes in production goods that can be produced with same resources (ex. corn and soy beans) compliments in production goods that are produced together; biproducts (ex. beef and leather) surplus Q supplied > Q demanded ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 shortage Q supplied < Q demanded equilibrium Q supplied = Q demanded elasticity responsiveness price elasticity of demand measure of the responsiveness of consumers to a change in price inelastic demand Ed < 1 elastic demand Ed > 1 "unit elastic" E=1 determinants of Ed 1) availability of substitutes 2) proportion of income 3) time ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 total revenue price x Q demanded elasticity and revenue when D is elastic, revenue follows Q demanded. when D is inelastic, revenue follows P. cross-price elasticity cpe > 0 : substitutes in consumption cpe < 0 : compliments in cons umption determinants of Es 1) availability of substitutes inputs 2) time consumer surplus MV-price producer surplus price-MC dead weight loss decrease in CS and PS as a result of inefficient level of production equity fairness ECON 251 Exam 1 Study this set online at: http://www.cram.com/flashcards/econ-251-exam-1-2311470 symmetry principle people in similar situations should be treated similarly utilitarianism achieve the greatest happiness for the greatest number maximum principle make the poorest person as well off as possible excise tax per unit tax tax incidence division of the burden of a tax between buyer and seller quota upper limit on Q of a good that can be sold