ECN 101 Final Exam Flashcards

Economics Basics

• Economics studies how individuals and societies manage scarce resources.
• Scarcity necessitates making choices, illustrating the concept's fundamental role.
• Profit is calculated as Total Revenue minus Total Cost.

Elasticity Concepts

• Elasticity measures buyer or seller responsiveness to market changes.
• Price Elasticity of Demand (PED) assesses quantity demanded changes in response to price shifts.
• The formula for Price Elasticity of Demand is Ep = |% change in QD| / |% change in P|.
• Elastic demand occurs when the quantity demanded significantly responds to price changes (Ep > 1).
• Inelastic demand is characterized by less responsiveness to price alterations (Ep < 1).

Revenue and Costs

• Total Revenue equals Price multiplied by Quantity sold.
• Total Cost comprises Explicit Costs (out-of-pocket expenses) and Implicit Costs (opportunity costs).
• Marginal Cost (MC) reflects costs incurred for producing an additional unit, expressed as Change in Total Cost/Change in Quantity.

Production and Efficiency

• The Production Function demonstrates the relationship between input quantity and output.
• Production efficiency signifies the optimal use of all resources, while inefficiency arises when resources are underutilized.
• The Production Possibilities Frontier (PPF) graphically represents the maximum possible output combinations.

Consumer Behavior

• Opportunity Cost represents what must be forgone when making a choice.
• Demand shifts occur due to changes in tastes, income, number of buyers, prices of related goods, and future expectations.
• In the context of goods, a normal good's demand increases as consumer income rises, while an inferior good's demand decreases.

Market Dynamics

• Perfect competition features numerous buyers and sellers, identical products, and no entry or exit barriers.
• Firms are price takers in perfectly competitive markets and cannot influence prices.

Government Regulations

• Price Ceilings set maximum prices, aimed to make goods affordable; binding ceilings lead to shortages.
• Price Floors impose minimum prices to prevent prices from dropping too low; non-binding floors do not affect market equilibrium.

Firm Decisions and Profit Maximization

• In the short run, firms decide whether to produce or shut down temporarily based on profit maximization where Marginal Revenue equals Marginal Cost.
• Long-run decisions involve altering plant size or entering/exiting markets.

Elasticity of Supply

• Price Elasticity of Supply (PES) measures how quantity supplied responds to price changes.
• Elastic supply indicates high responsiveness (Ep > 1); inelastic supply shows low responsiveness (Ep < 1).

Economic Theory

• Positive statements aim to describe reality and are testable, while normative statements offer opinions on what ought to be.
• Economic models simplify complex real-world phenomena by focusing on key factors and assumptions.

Trade and Specialization

• Comparative advantage drives specialization and trade, allowing countries and individuals to benefit from producing goods efficiently.
• Economic scale describes how average total costs change with output levels, impacting competitiveness and market structure.

Test your knowledge about fundamental economics concepts with these flashcards. Learn key definitions, such as the meaning of economics, elasticity, and profit equations. Perfect for ECN 101 students preparing for their final exam.