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Econ 20A Cheat Sheet (DRAFT) by

Economics final cheat sheet

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Week 1

 

Week 2

 

Economics and Scracity

economics
the study of how society manages its scarce, or limited, resources.
Economics studies all of these forces – decision making by indivi­duals, by firms, by government instit­utions
Focus is on how markets operate to allocate scarce resources
Scarcity
Dictators (since they might not know much about economics, it would likely fail) and government (have advisors to help plan) decide allocation
alloca­tions work through the intera­ctions of all these people through markets
from Week 1

Basic Principles of Microe­con­omics

Microe­con­omics
The study of how households and firms make decisions and interact in markets.
Macroe­con­omics
The study of how economy wide phenomena including inflation, unempl­oyment and economic growth.
Principles of Microe­con­omics
How People Make Decisions
 
Principle 1
People face trade-offs
 
Principle 2
Opport­unity Cost
the cost of something is what you give up to get
 
Principle 3
People think at the margin
 
Principle 4
People respond to incentives
Government policies have incent­ives, sometimes uninte­nded. Sometimes don't work as intended.
How People Interact
 
Principle 5
Trade can make everyone better off
 
Principle 6
Markets are usually a good way to organize economic activity
 
Principle 7
Sometimes govern­ments can improve market outcomes
How the Economy Works
 
Principle 8
A country's standard of living depends on its ability to produce goods and services
 
Principle 9
Prices rise when the government prints too much money
inflation: an increase in the overall level of prices in the economy
 
Principle 10
Society faces a short-run trade-off between inflation and unempl­oyment

Questions

What exactly do people gain when they trade with each other?
Why do people choose to be interd­epe­ndent?

Important Concepts

Absolute Advantage
ability to produce more of a good, given inputs, then another producer
Compar­ative Advantage
the ability to produce a good at a lower opport­unity cost than another producer
better to specialize in whatever makes makes your opport­unity cost the least

Demand, Supply, and Market Equili­brium

Market Demand
 
Quantity demanded
amount of good buyers are willing and able to purchase
 
Law of Demand
all else equal, as the price rises its quantity demanded decreases
 
Demand Curve
a graph of the relati­onship between the price of a good and quantity demanded
   
Causes of shifts
   
Income
     
normal good
if demand for a good increases when income increases
     
inferior good
if demand for a good decreases when income increases
   
Prices of related good
     
substi­tutes
if price of sunstitute goes down, the demand goes down
     
comple­ments
if price of complement goes down, the demand goes up
   
tastes­/pr­efe­rences
   
expect­ations
Market Supply
 
Quantity supplied
amount of a good that sellers are willing and able to sell
 
Law of Supply
all else equal, when the price of a good rises the quantity supplied rises
 
Supply Curve
relati­onship between price of a good and quantity supplied
Remember to notice what makes that demand relati­onship change, i.e. the forces that would make someone want more of a good at any given price.

Market Equili­brium

a situation in which the market price has reached the level at which quantity supplied = quantity demanded

Changes in Supply and Demand

Steps
1
Decide whether it is: supply, demand, or both.
2
Decide in which direction curve shifts
3
Use demand­-supply graph to evaluate change.
Scenarios
-
An increase in demand.
-
An increase in supply.
-
An increase in both demand and supply

Week 3

 

Elasticity

Elasticity
a measure of the respon­siv­eness of quantity demanded or quantity supplied to a change in one of its determ­inants
 
Elastic Demand
if the quantity demanded responds substa­ntially to a price change
steeper demand curve
 
Inelastic Demand
if the quantity demanded responds only slightly to a price change
flatter demand curve
Types of Elasticity
 
Price Elasticity
measures how much quantity demanded responds to a change in price.
Price Elasticity of Demand= %Δ in Quantity Demanded / %Δ in Price
[Q2−Q1 (Q1+Q2)/2] / [P2−P1 (P1+P2)/2]
 
Supply Elasticity
measures how much the quantity supplied responds to a change in the price
What factors affect elasti­city?
 
close substi­tutes
elastic since easier for consumer to switch to a substitute good
 
necess­ities
inelastic because need to survive
 
luxuries
elastic because don't need
 
time horizon
more elastic over long horizons because necess­ities can become luxuries