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Macroeconomics CLEP - basic terms

flashcards made for help studying with macroeconomics CLEP
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scarcity
desires are unlimited, resources are limited.
economics
the science of efficiency; concerned with allocating these scarce resources so as to achieve maximum fulfillment of our material wants
full employment
all resources available being used (land, capital goods, and laborers)
full production
all available resources are making the most valuable contributions to output
allocative efficiency
all resources are devoted to society's most desired goods and services
productive efficiency
the least costly method of production is being used to produce the desired goods and services
economic efficiency
achieved when society is producing at full employment and full production
opportunity cost
the amount of products that must be forgone in order to obtain an additional unit of any given product
downward slope
a graphical representation of opportunity costs
production possibilities curve
a graphical representation of the boundary between what is attainable and what is not
four assumptions of PPC
(1) the economy is fully efficient meaning that it is operating at full production and full employment; (2) resources are fixed; (3) technology is fixed; and (4) there are only two products.
attainable and efficient
points on the PPC
outside PPC
a point of production that is unattainable
inside PPC
a point of production that is inefficient
concave shape of PPC
indicates increasing opportunity costs
shift to right of PPC
indicates economic growth (society found more resources or developed better technology)
consumer goods
goods that satisfy needs or wants immediately and get used up
capital goods
items that satisfy wants indirectly by facilitating the production of consumer goods; economic growth is dictated by a society's production of capital goods
capitalism
a system of private ownership of resources using free markets and prices to determine economic activity; little government involvement
laissez-faire
meaning, 'let it be,' this is a term that indicates little government involvement in the economy
command economy
a communist economy; the government determines what is produced and in what quantities and at what price
mixed economy
most economies are not completely laissez-faire and not completely command, but some mixture
traditional economy
custom and culture define how resources are produced and exchanged and how income is distributed, and technology is viewed as invasive
demand
amount of a good or service that consumers plan to buy in a given period of time and in given conditions
factors influencing demand
(1) the price of the good; (2) the prices of related goods; (3) expected future prices; (4) income; (5) population; and (6) preferences
Law of Demand
the higher the price, the lower the quantity demanded. the lower the price, the higher the quantity demanded.
demand curve
slopes downward
substitute effect
if a similar good is priced more cheaply, people will buy the cheaper substitute instead of the good itself (Coke, Pepsi; bananas, strawberries)
income effect
at a lower price, people will buy more of a particular good because they do not have to sacrifice other goods at its expense
change in demand
when something other than price changes a demand, the demand curve shifts left or right
increase in demand
curve shifts to right
decrease in demand
curve shifts to left
supply
the amount of good or service that a producer plans to sell in a certain time frame
factors determining supply
1) the technique of production; (2) prices of resources needed to produce the good or service; (3) taxes and subsidies; (4) prices of other goods; (5) price expectations; and (6) the number of other sellers in the market.
Law of Supply
as price rises, the corresponding quantity supplied also rises and likewise when the price falls, the quantity supplied decreases
change in supply
when something other than price changes in supply, the supply curve shifts left or right
increase in supply
curve shifts to right
decrease in supply
curve shifts to left
equilibrium price
the point at which quantity demanded and quantity supplied meet
surplus
results when the price is set above equilibrium price
shortage
results when the price is set below the equilibrium price