Transcript econ231_1 - William J. Polley

Principles of
Macroeconomics
Econ 231 Spring 2010
William J. Polley
Department of Economics
College of Business and Technology
Western Illinois University
Top 10 Things to Know for the Exam
1. People respond to incentives!
2. Opportunity cost is a result of choice. It is
the best foregone alternative to the chosen
action.
3. Trade-offs are everywhere!
4. Law of demand: Ceteris paribus, an
increase (decrease) in price causes a
decrease (increase) in the quantity
demanded. (Demand curves slope
downward!)
Top 10 Things to Know for the Exam
4. Continued. Law of Supply: Ceteris paribus,
an increase (decrease) in price causes an
increase (decrease) in the quantity supplied.
5. Change in demand (or supply)=Shift of the
curve, whereas a change in the quantity
demanded = movement along the curve.
6. The equilibrium price is where Qs=Qd=Qe
(the equilibrium quantity).
7. At equilibrium, consumer surplus + producer
surplus is maximized.
Top 10 Things to Know for the Exam
8. Price controls prevent Qs from equaling Qd
and therefore cause inefficiencies.
9. With price ceilings and price floors, goods do
not necessarily go to their highest valued
uses.
10. The market system (interaction of supply
and demand) transmits powerful signals to
people and creates powerful incentives…
and people respond to incentives!