Econ Review Terms and Definitions


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Econ Review Terms and Definitions

  1. 1. Definitions and Diagrams<br />Section 1 and 2<br />
  2. 2. Section 1<br />Introduction to Economics<br />
  3. 3. Macroeconomics <br />The study of economy wide activity. <br />For example: A study on the the unemployment in Uganda. <br />
  4. 4. Microeconomics <br />The study of individual Markets<br />For example: The supply of Cadbury Chocolate in Rokko Island supermarkets. <br />
  5. 5. Normative Economics <br /> Economics that works to alter the state of the world and its economic welfare; the opposite of positive economics<br />For example: Studying ways to cut the unemployment rate in Australia. <br />
  6. 6. Positive Economics <br /> Statement of fact; can be proven or disproven; examine how an economy functions <br /> For example: There was a 5% increase in demand in Japan from 2009 to the 2010 fiscal year for Coca Cola. <br />
  7. 7. Scarcity <br /> A lack of resources in terms of the consumer demand. <br />For example: There is a scarcity of water in the Democratic Republic of Congo. <br />
  8. 8. Marginal Utility<br /> The satisfaction a consumer gains from consuming one extra unit<br /> For example: If someone eats a chocolate bar and are happy about eating it, they might not be as happy to eat a second chocolate bar. <br />
  9. 9. Market Economy <br /> An economy where supply and demand dictate how resources are allocated; individuals dictate the allocation of resources rather than the government<br /> For example: The United States runs a system that has many similarities to a market economy. <br />
  10. 10. Mixed Economy <br /> An economy in which the allocation of resources are dictated by both individuals and the government <br /> For example: New Zealand runs a system with government ownership and individual ownership coincide. <br />
  11. 11. Command Economy<br /> An economy where the government dictates the allocation of resources<br /> For example: The Soviet Union was a system similar to that of a command economy as the state controlled the allocation of resources. <br />
  12. 12. Production Possibilities Curve<br /> A PPC is an economic model that displays the total potential output; shows economic growth and how it can be achieved; shows opportunity cost <br />
  13. 13. PPC: Figure 1<br />A<br />B<br />Pens<br />0<br />Pencils<br />
  14. 14. Section 2<br />Microeconomics <br />
  15. 15. Market <br /> A market is where a buyer and seller come into contact over a product or service<br /> For example: Pearl dealers can meet buyers in Hong Kong over the sale of pearls<br />
  16. 16. Demand<br /> The willingness and the ability to a buy a good or service during a specific amount of time<br /> For example: There was an increased demand for iPhones in 2010. <br />
  17. 17. An Increase in the Demand of Snuggies<br />P1<br />D2<br />D1<br />Q1<br />Q2<br />0<br />
  18. 18. Supply<br /> The amount and the availability of a certain product or service to supply during a certain amount of time<br /> For example: there is a constant supply of gas in Japan. <br />
  19. 19. The Supply of Weapons in Afghanistan <br />S1<br />S2<br />Price <br />P1<br />Q1<br />Q2<br />0<br />Quantity of Military Goods<br />
  20. 20. Law of Demand <br /> As the price of a product or service decreases, the demand for the product or service will increase and vice versa.<br /> For example: If the price of Meiji chocolate decreases from 110 yen to 100 yen, its demand will decease. <br />
  21. 21. Law of Supply<br /> As the price of a product or service falls, so will its supply and vice versa. <br /> For example: If Meiji’s chocolate price falls 10 yen to 100 yen, then so will its supply. <br />
  22. 22. Maximum Price<br /> A maximum price is a price ceiling which imposes that a good or service cannot be sold above that price. <br /> For example: If the government sets a price ceiling on oil at $5.10 a gallon, it cannot be sold above that price. <br />
  23. 23. Minimum Price<br /> A minimum price or a price floor dictates that a good or service cannot be sold at below that price. <br /> For example: If ice cream is has a price floor of $1.30 then the ice cream cannot be sold below that price. <br />
  24. 24. Shortages and Surpluses<br />S<br />Surplus<br />P2<br />P<br />r<br />I<br />ce<br />Market Clearing Price<br />P1<br />P3<br />Shortage<br />D<br />0<br />Quantity<br />
  25. 25. Elastic<br /> A good or service that is responsive to change<br /> For example: Fish at a market are elastic depending on the amount caught each day.<br />
  26. 26. Inelastic<br /> A good or service that is not response to change<br /> For example: There is only one Oprah Winfrey and she is always going to be Oprah. She is unique. <br />
  27. 27. Price Elasticity of Demand<br /> It is a measure of the responsiveness of a good or service’s quantity demanded<br /> For example: The PED of a Hummer will be different to that of Blue Marlin. <br />
  28. 28. Cross elasticity of Demand<br /> XED measures the responsiveness of one good or service after a change in price of another good or service<br /> For example: Meiji chocolate might change in price after Cadbury chocolate changes in price. <br />
  29. 29. Income elasticity of demand<br /> Income elasticity of demand measures the responsiveness of the demand of a good or service in response to a change in income<br /> For example: YED would measure the demand for Porche’s following a drop in average income earnings. <br />
  30. 30. Price Elasticity of Supply<br /> PES measures the responsiveness of the good or service supplied given a change in the price of that good or service<br /> For example: PES would measure the supply demanded of a Porche after its price increased. <br />
  31. 31. Complimentary Goods<br /> A complimentary good is a good or service that if a related product experiences an increase in demand, the complimentary good will also experience an increase in demand and vice versa<br />For example: Ketchup and fries are complimentary goods. <br />
  32. 32. Supplementary goods<br /> Supplementary goods are good or services that if a supplementary good experiences an increase in demand, this good or service will experience a fall in demand<br /> For example: Coke and Pepsi are supplementary goods. <br />
  33. 33. Indirect Tax<br /> An indirect tax is a sales tax; it is a tax on the bearer of the consumer of the product or service<br /> For example: There is an indirect tax on chocolate in New Zealand. <br />
  34. 34. Tax Incidence <br /> Tax incidence is a tax that is shared amongst a group of consumers in a market rather than an individual; dependant of elasticity <br /> For example: A tax incidence would be set on on Meiji as they are the producers of the chocolate. <br />
  35. 35. Theory of the Firm <br />
  36. 36. Costs<br />Fixed costs are costs of production that do not change with the level of output. They will be the same for the one or any other number of units.<br />Cost of rent, electricity <br />Variable costs are costs are costs of production that vary with the level of output.<br />Cost of goods that are produced<br />Total costs are the total costs of producing a certain level of output–fixed costs plus variable costs.<br />Combination of rent, electricity and goods produced<br />
  37. 37. Costs<br />Average cost is the average (total) cost of production per unit. It is calculated by dividing the total cost by the quantity produced<br />The total cost of producing chocolate is $1000/1000 bars produced=$1 per bar of chocolate<br />Marginal cost is the additional cost of producing an additional unit of output.<br />The cost of producing an extra bar of chocolate could change from $1 to $1.02 depending on various factors<br />
  38. 38. Total Cost, Fixed Costs, and Variable Costs<br />TVC<br />TC<br />Cost<br />TFC<br />Output<br />0<br />
  39. 39. The Short Run<br />The short run is the period of time in which at least one factor of production is fixed<br />For Meiji chocolate this could mean that they have to make chocolate using the same machines<br />
  40. 40. The Long Run<br />- The long run is the period of time in which all factors of production are variable.<br />For Meiji chocolate this means that everything can change: technology, staffing, location etc. <br />
  41. 41. Revenues<br />Total revenue is the aggregate revenue gained by a firm from the scale of a particular quantity of output (equal to price times quantity sold).<br />The total amount of money that Meiji chocolate made eg. 50 sold * $3 a bar =r TR of $150<br />Average revenue is total revenue received divided by the number of units sold. Usually, price is equal to average revenue.<br />$150 TR / 50 bars sold = $3 a bar<br />Marginal revenue is the extra revenue gained from selling an additional unit of a good or service.<br />Meiji could make an extra $2.80 if they sell an extra bar of chocolate<br />
  42. 42. Profits<br />Normal profits are the amount of revenue needed to cover the total costs of production, including the opportunity costs.<br />Meiji chocolate might needs $1000 dollars to cover production costs<br />Abnormal profits are any level of profit that is greater than the required to ensure that a firm will continue to supply its existing good or service. (It is an amount of revenue greater than the total costs of production, including opportunity costs.)<br />This is anything over that $1000 dollars needed<br />The profit-maximizing level of output is the level of output where marginal revenue is equal to marginal cost.<br />When Meiji chocolate produces at a level where its marginal revenue is equal to that of its marginal cost<br />
  43. 43. Normal Profit<br />AC<br />MC<br />P<br />C<br />o<br />s<br />t<br />D=AR<br />Q<br />MR<br />Output<br />
  44. 44. Thanks!<br /> I’m sure you’ve really been reviewing if you’ve gotten this far!<br />