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Econ 222 Exam 1 - Chandini
Terms in this set (79)
examines the functioning of individual parts of the economy (single product markets or specific industries) and the behavior of individual decision making units (firms, households, consumers)
Example: Study of reasons; why people want to buy more coke.
Looks at the economy as a whole. We add up the microeconomics parts to come up with an overall picture. Macroeconomics has many microeconomic counter parts.
Example: Rather then being concerned with the change in price of one good, we should study the change in the average level of prices of all goods in economy.
Comes from a greek word for "one who manages a household" In the economy we are faced with many decisions, just as a household is.
The study of the economy and the behavior of people in the economy. Made up of two parts: Microeconomics and Macroeconomics
In general terms encompasses more than a country's soil. It includes all natural resources- Timber, minerals, rivers, etc.
refers to goods produced in an economy that are used to produce other goods and services. Machines, tools, ( such as factories) are capital goods.
Consists of the physical and mental abilities of workers- the production potential of miners, secretaries, and others producing output.
an individual who organizes resources for production, introduces new products or techniques of production, and reaps the rewards/bears the consequences of such endeavors. The hallmark of an entrepreneur is innovation and risk taking.
Factors of Production
economic resources are called this to emphasize their role in producing goods and services.
A "decentralized" group of buyers and where household (buyers) and firms (sellers) make their own decisions.
Example: Market for cars : Car salesmen and car buyers
Market for Pizza: Pizza makers and pizza consumers.
GDP: Gross Domestic Product
The market value of all final goods and services produced within a country in a given period of time.
CPI : Consumer Price Index
A measure of the overall cost of the goods and services bought by a typical consumer.
The percentage of the labor force that is unemployed.
Labor Force: The total number of workers, including both employed and unemployed.
How often in the GDP Calculated and Reported? Who Calculates it?
The GDP is calculated every three (3) months. It is calculated by the BEA. (Bureau of Economic Analysts) which is part of the U.S Department of Commerce.
Fluctuates in economic activity, such as employment and production.
The high point of an economic expansion/boom.
The low point of an economic recession.
when the short run Real GDP rises.
A period of declining real incomes and rising unemployment, after two or more quarters of short run Real GDP falling, the period is deemed a recession.
The Business Cycle Debating Committee
Dates the peaks and troughs, part of the BEA (Bureau of Economic Analysts)
Trend Growth in Real GDP
The average "line" on the graph of Real GDP and time, dealing with business cycles.
The amount of money circulating in our economy.
Determines money supply. aka (The U.S Central Bank)
Expansionary Monetary Policy
Increases the money supply, the value of the dollar decreases and one dollar buys less then it did before.
Increase in overall Prices ( Inflation)
Shortens the duration and severity of recessions by spurring the economy in the short-run
Contractionary Monetary Policy
Decreases the money supply, the value of the dollar increases and one dollar buys more things than before.
Decreases in overall prices (Deflation)
Inflation or unemployment?
Higher inflation means lower unemployment.
Lower inflation means higher unemployment.
An increase in the overall level of prices in the economy.
Puts more currency into the money supply, decreases the value of currency.
The Father of Modern Economics.
Encourages Capitalism: Economy is guided by the "invisible hand" the unseen force that brings buyers and sellers into price agreement (equilibrium) in a market.
Tradeoffs between the government engaging in expansionary policy and doing nothing in recessions.
Expansionary policy causes inflation but decreases unemployment, can shorten the duration and severity of a depression and spur the economy in the "short run"
The Great Depression
Food was being rationed
When society is getting the maximum benefits from its scare resources
(The size of the economic pie)
Means that those efficient benefits are distributed uniformly among society's members.
(How the pie is divided into individual slices)
What you give up to get an additional unit of the other good.
The limited nature of society's resources. Because of scarcity, a country is limited to points on or below its production possibilities curve.
Capitalistic Society (Market Economy)
Economy takes place in a market, where there is no government intervention. Buyers and Sellers establish a price for supply and demand. (Doesn't Exist today)
Government decides everything: tells firms what to produce and how much to produce and what the price is *price setters
(Government owns everything)
Ex: North Korea, Cuba
Can be weighted towards Capitalistic or Command Economies.
U.S is weighted towards capitalistic, China is weighted towards Command, however in almost every economy in the world is a version of a Mixed economy.
When a market breaks down and the government must intervene to save the market.
Examples of Government Intervention: Externalities, excessive market power, equity, government providing public goods, National Security/Political Stability, Enforcing Laws, contracts, and properties.
The ability of a single person or firm to unduly influence market prices.
When there is one seller of a good or service and they are the price makers.
Monopolies that are highly regulated by the Government; high start up costs- can only be one firm because two firms cannot be successful.
Example: Utility Companies.
Two large firms that control a market
A few large firms that control the market.
Example : Automobile, Cellphone, Banking, Airline Industries.
the impact of one persons actions in the well-being of a bystander.
Negative : Chandini Ripping cigs affects the students in class
Positive: EPA: Environmental Protection Agency: steps in and does not allow smoking inside, getting rid of negative externality.
A good that a private maker would not be able to provide
A good that a private maker would provide
When a person can be prevented from using a good or service.
When one person's use of a good or service diminishes another.
Fire alarms ) Public Good
Coca Cola) Exludable and Rival- they are able to change the price
FIrework Display) Private or public good: Depends: non-excludable and non rival.
The amount of goods and services in a country produced by each unit of labor input. Affects a countrys standing of living
a small incremental adjustment to an existing plan of action. The decision to choose one alternative over another occurs when MB>MC
Per-Unit benefit of a rational decision (What you gain)
Per-Unit cost of a rational decision (what you give up)
Rational Decision Making
How rational people make decisions based on marginal benefits vs. Marginal Costs.
When countries exchange goods with one another.
Gains From Trade
Trade allows each person/country to specialize in the activities she does best, whether it is farming, sewing, or home building. By trading with others, people can buy a greater variety of goods and services at lower cost.
Progressive Tax System
Taxing individuals progressively higher depending on their income.
Satisfy one's want on their own and consuming everything they produce.
Specializing in the production of something and trading with others for the few things we desire.
Statements that describe the world as it is; called descriptive analysis; can be justified by examining evidence. Deals mostly with the facts about the past or prediction about the future.
prescriptive and claim how the world "ought" to be; called prescritpive analysis. They cannot be tested or shown true or false. They reflect personal views, values, and judgements.
Circular Flow Diagram
Two Markets: Goods and Service, and for Factors of Productions.
Households: buy and consume goods and services; own and sell factors of productions
Firms; Produce and sell goods and services and sellers in the market for factors of production.
Production Possibility Frontier
shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology.
a market in which there are many buyers and sellers so that each one has a negligable impact on the market price. `
A market with many different sellers offereing slightly diffferent products, the software industry.
Perfectly competitive markets
NOT perfectly competitive markets
A good for which demand increases in responce to a higher income.
A good in which demand falls in responce to a higher income
Two goods that are very similar and can be replaced for one another.
Goods that are used/consumed together - two goods are complements when an increase in the price of one good reduces the demand for another
Change in Quantity Demand
Movement along the demand curve
Caused by a change in the price of a good itself only.
Change in Quantity Supplied
Movement along the supply curve.
Caused by a change in the market price of the product only.
Change in Demand
Shift in the demand curve either to the left of the right
Changed by anything but the price of the good
Determinants of Demand
price of related goods
consumer expectations of future
tastes and pref.
number of buyers
Determinants of Supply
prices of other goods
number of sellers/produc.
changes in the weather
Recommended textbook explanations
Principles of Economics
N. Gregory Mankiw
Economics: Principles in Action
Arthur O'Sullivan, Steven M. Sheffrin
Economics: New Ways of Thinking
Roger A. Arnold
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