Ch.

2: Models and Data: Market demand is derived by fixing the price and adding up the quantities that each buyer demands. LoD: as
the price of a good increases, the quantity demanded decreases →-tive relationship. Aggregation: fixing the price of a good and adding
up the quantity demanded by each buyer. 5FTSDC: taste and preferences, change in population, price change, change in expected price
change, change in income of buyers. Movement along DC only shows relationship between P and Qd. As demand increases, demand
curve shifts right. HAEE, if the price of something increases, demand decreases. WTA: the lowest price that a seller is willing to receive
to sell an extra unit of a good. WTP: highest price that a buyer is WTP for an extra unit of a good. For a trade to take place, a buyer’s
will to pay must be higher than or equal to the seller’s WTA. A left shift in the supply curve will cause equilibrium to increase. A large
right shift and a small right shift in the demand curve will cause equilibrium to increase. A large left shift in the supply curve in the
supply curve and a small left shift in the demand curve causes equilibrium price to increase. Marginal Cost: the increase in production
costs generated by the production of additional product units. Marginal Benefit: the max amount someone is willing to pay for an
additional good or service. An individual's WTP is measured over different quantities of the same good define the demand curve. If the
retail price of a good increases, the quantity demanded decreases, HAAC. Anindifference curve is the set of bundles that provide an
equal level of satisfaction for the consumer. The substitution effect of an increase in the price of one good always decreases the
amount of that good in the individual’s new consumption choice and increases the amount of the other good. The associated income
effect of an increase in the price of one good may increase or decrease the quantity of that good and may increase or decrease the
quantity of the other good, but the quantities of the two goods in the new consumption choice cannot simultaneously increase as a
result of the income effect. Utility: the happiness or satisfaction that comes from consuming a good. Ch.3: Optimization: Optimization
using total value calculates the total value of each feasible option and then picks the option with the highest total value. Optimization
using marginal analysis calculates the change in total value when a person switches from one feasible option to another, and then uses
these marginal comparisons to choose the option with the highest total value. Optimization using total value and optimization using
marginal analysis give identical answers. Optimization Techniques: 1. Total Value: total benefit– total cost (net benefit). 2. Marginal
Analysis : the change in the net benefit of one option compared to another, Marginal Benefit=Marginal Cost. Optimization using total
value:1.Translate all costs and benefits into common units, like dollars per month. 2.Calculate the total net benefit of each alternative.3.
Pick the alternative with the highest net benefit. Marginal cost is the change in cost. POAM: If an option is the best choice, you will
be made better off as you move toward it, and worse off as you move away from it. Ch.4: Supply & Demand: In a PCM: 1.sellers all sell
an identical good or service 2. any individual buyer or any individual seller isn’t powerful enough on his or her own to affect the market
price of that good or service. Demand curve: plots the relationship between the market price and the quantity of a good demanded by
buyers. Supply curve: plots the relationship between the market price and the quantity of goods supplied by sellers. Competitive
equilibrium: supply=demand. When prices are not free to fluctuate, markets fail to equate supply and demand. Market: group of EA’s
who trade a good or service plus the rules and arrangements for trading. Market Price: the price at which buyers and sellers conduct
transactions. PCM: there are very many identical sellers and very many buyers. Every buyer pays and every seller charges the same
market price. No buyer or seller is big enough to influence that market price. Quantity Demanded: The amount of a good that buyers are
willing to purchase at a given price. Demand Schedule: A table that reports the quantity demanded at different prices, holding all else
equal. Demand Curve: Plots the quantity demanded at different prices. Market Demand Curve: Sum of the individual demand curves of
all potential buyers; plots the relationship between total quantity demanded and market price, holding all else equal. LoD: In almost all
cases, the quantity demanded rises when the price falls holding all else equal. Ch. 5:Consumer Behavior. CB: The buyer’s problem has
three parts: preference, prices, and budget. Utilitarianism: idea that everyone’s happiness should be equal and treated equally. Optimizing
buyer: makes decisions at the margin. individual’s demand curve: reflects an ability and WTP for a good or service. Consumer surplus is
the difference between what a buyer is willing to pay for a good and what the buyer actually pays. Consumer surplus is a meaningful
measure of changes in well-being. Social surplus = consumer surplus + producer surplus. Elasticity Measures: ED > 1 = Elastic, ED < 1
= Inelastic, ED = 1 = Unit Elastic, ED = ∞ = Perfectly Elastic, ED = 0 = Perfectly Inelastic Ch. 6: Producer Surplus: Seller’s problem:
production, cost, revenue. Short run: Period of time when some of the firm’s inputs cannot be changed Bakery Ex: in the short run, you
can’t buy another oven- if you are baking cakes today you are limited by the current number of ovens Long run: Period of time when
all of the firm’s inputs can be changed. Bakery Ex: in the long run, you can buy another oven, even build another kitchen Variable
factor of production: Input that can be changed in a certain period of time and that changes if the level of output changes Fixed factor
of production: Input that cannot be changed in the short-run and that stays the same, regardless of how much output is produced
Marginal product increases with the first workers: Specialization: Workers are more efficient when they specialize in production and work
together to produce goods. Eventually, marginal product falls: Law of diminishing returns: At some point, each additional worker
contributes less output than the worker before. Marginal product can be negative: Capital is fixed in the short run. If more and more
workers keep getting added, they will get in each other’s way and actually cause output to fall. Variable Cost: The cost associated with