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EC 201 Exam 1 MSU Kang With Complete Solutions Graded A+
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10/12/24, 12:18 PMEC 201 Exam 1 MSU Kang
Jeremiah
Terms in this set (77)
Studies how the decision makers in the economy - the individuals, firms,
Economics governments, and other organizations - make choices. Limited amount of resources
(scarce)... have to make choices.
1. What is produced, and in what quantities?
2. How are these goods produced?
Questions of an economy
3. For whom are these goods produced?
4. Who makes economic decisions, and by what process?
1. Public decision making.
2. Private decision making.
Who makes economic Decisions?
3. Mixed economy...Individuals make their own decisions, however, Gov't can affect
decision through trade policies.
Any situation in which Exchanges takes place; it need not be a physical place.
1. Product Market
Market
2. Labor Market
3. Capital Market.
Product Market Firms sell the product and individuals buy the product. Imports and exports.
Firms hire labor/workers and individuals sell themselves to the firms for work.
Labor Market
Immigrants come to the US in search for economic opportunity.
Firms borrow/buy money from big capital banks while individuals sell/save their
money to banks that firms take from. Capital crosses national boundaries. Firms often
Capital Market
build factories in foreign countries/buy already existing ones through foreign
investment activities. United states is the worlds largest international borrower.
Studies three markets: product, labor and capital... focusing on the behavior of
individuals, households, firms, and other organizations that make up the economy.
Microeconomics
Studies the rate productivity of growth in each sector.
Bottom-up view
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Performance of economy as a whole and measures unemployment, inflation, growth,
and the balance of trade.
Macroeconomics
Top-down view
Rational Consumers Self-interest
Rational Firms Maximize Profits
1. Many firms selling identical products to many consumers.
2. Charge same price.
Competitive Markets
3. If a firm charges higher price than others, it loses its customers.
4. Efficient. Scarce resources are not wasted.
1. It is not posible to make one person better off without making someone else
worse off.
Pareto Efficiency
2. It is not possible to produce more of one good without producing less of another
good.
Necessary and sufficient condition for Resources must be all used up...none left over.
efficiency
Combination of goods, which are feasible. (cost and logistical outlook on making a
Opportunity Sets
product).
Producers Constraint With a given quantity of inputs, a firm can only produce certain quantities of goods.
Curved, bowed out from the origin. Points interior to the curve are inefficient.
Production Possibilities Curve (PPC) Optimal production mix is always on the curve. (Shaped like a rainbow from left to
right).
As the output of the good measured on the horizontal axis increases, the slope of
Diminishing Returns PPF becomes steeper. As more inputs are used, output increases at a diminishing
rate.
The option forgone. Time and budget constraints illustrate the cost of one option in
Opportunity Cost
terms of the other.
Comparative Ad: The ability of a group to cary out a particular economic activity
(such as making a specific product) more efficiently (at a lower marginal and
Comparative Advantage Vs Absolute
opportunity cost) than any other activity. Countries have different comparative
Advantage
advantages. Absolute Ad: the capability to produce more of a given product using
less of a given resource than a competing entity.
Shows the quantity of the good demanded at each price. Downward sloping. As
Demand Curve
price increase, quantity demanded falls...as price falls, consumers buy more.
Market Demand Curve Horizontal sum of individual demand curves.
Movements along a demand curve A change in price
All other changes that affect demand:
-income
-price of other goods
-composition of population
Shifts in demand curve
-tastes
-information
-the availability of credit
-expectations
1. The demand graph shifts upward/to the right when income increases.
Normal Good (Diamond) 2. High elasticity.
3. Consumer's demand increases when their income increases.
EC 201 Exam 1 MSU Kang
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