Upgrade to remove ads
Only $35.99/year

macro 2105 test 1

Terms in this set (108)

economics
the study of how people allocate their limited resources to satisfy their nearly unlimited wants
scarcity
refers to the limited nature of society's resources, given society's unlimited wants and needs
microeconomics
the study of the individual units that make up the economy
macroeconomics
the study of the overall aspects and workings of an economy
incentives
are factors that motivate a person to act or exert effort
positive incentives
incentives that encourage actions
end of year bonus
example of positive incentives
negative incentive
incentives that encourage actions by implying a potential negative consequence spurring individuals to action
indirect incentives
creates un-intendended consequences
innovation
incentives play a vital role in __________
trade-offs
all the alternatives we give up when we make a choice
opportunity cost
is the highest-valued alternative that must be sacrificed in order to get something else
economic thinking
requires a purposeful evaluation of the available opportunities to make the best decision possible
marginal thinking
requires design-makers to evaluate whether the benefit of one more unit of something is greater than the cost
markets
bring buyers and sellers together to exchange goods and services
trade
is the voluntary exchange of goods and services between two or more parties
comparative advantage
refers to the situation where an individual, business, or country can produce at a lower opportunity cost than the competitors
specialization
comparative advantage harnesses the value of __________
incentives, trade-offs, making choices and experiencing opportunity cost, marginal thinking, and trade which creates value because people are able to specialize based on comparative advantage
What are the five foundations of economics?
positive statement
can be tested and validated; it describes "what is"
negative statement
is an opinion that cannot be tested or validated' it describes "what ought to be"
ceteris paribus
is the concept under which economists examine a change in one variable while holding everything else constant
endogenous factors
are the variables that can be controlled for in a model
exogenous factors
are the variables that cannot be controlled for in the model
1) what to include in the model
2) the assumption we make when choosing what to include
3) the outside conditions that affect our model's performance
The three factors to consider when building an economic model
production possibilities frontier
is a model that illustrates the combinations of outputs that a society can produce if all of its resources are being used efficiently
law of increasing relative cost
states that the opportunity cost of producing a good rises as a society produces more of it
absolute advantage
refers to the ability of one producer to make more than another producer with the same quantity of resources
consumer goods
are produced for present consumption
capital goods
help produce other valuable goods and services in the future
investment
is the process of using resources to create or buy new capital
bar graph, pie chart, and time-series graph
graphs that consist of one variable
scatterplot
graphs that consist of two variables
positive correlation
occurs when two variables move in the same direction
negative correlation
occurs when two variables move in the opposite direction
slope
refers to the change in the rise along the y axis divided by the change in the run along the x axis
causality
occurs when one variable influences the other
reverse causation
occurs when causation is incorrectly assigned among associated events
market economy
resources are allocated among households and firms with little or no government interference
competitive market
exists when there are so many buyers and sellers that each has only a small impact on the market price and output
imperfect market
is one in which either the buyer or the seller has an influence on the market price
monopoly
exists when a single company supplies the entire market for a particular good or service
quantity demanded
is the amount of a good or service that buyers are willing and able to purchase at the current price
law of demand
states that all other things being equal, quantity demanded falls when prices rise, and rises when prices fall
demand schedule
is the table that shows the relationship between the price of a good and the quantity demanded
demand curve
is a graph of the relationship between the prices in the demand schedule and the quantity demanded at those prices
market demand
is the sum of all the individual quantities demanded by each buyer in the market at each price
normal goods
consumers buy more of ___________ as income rises, holding other things constant
inferior good
is purchased out of necessity rather than choice
complements
are two goods that are used together
decreases
when the price of a complementary good rises, the demand for the related good _______________
substitutes
are two goods that are used in place of each other
increases
when the price of a substitute good rises, the quantity demanded _______________ and the demand for the related good ______________
income, price of related goods, tastes and preferences, future expectations, and number of buyers
factors that affect demand
quantity supplied
is the amount of a good or service that producers are willing and able to sell at the current price
law of supply
states that, all other things being equal, the quantity supplied of a good rises, and falls when the price of the good falls
supply schedule
is a table that shows the relationship between the price of a good and the quantity supplied
supply curve
is a graph of the relationship between the prices in the supply schedule and the quantity supplied at those prices
market supply
is the sum of the quantities supplied by each seller in the market at each price
cost of inputs, changes in technology, taxes and subsidies, number of firms, and price expectations
shifter in supply
equilibrium
occurs at the point where the demand curve and the supply curve intersect
equilibrium price (market clearing price)
the price at which the quantity supplied is equal to the quantity demanded
shortage
occurs whenever the quantity supplied is less than the quantity demanded
surplus
occurs whenever the quantity supplied is greater than the quantity demanded
surplus
when the price is above equilibrium, a _________ exists
shortage
when the price is below equilibrium, a ____________ exists
the equilibrium point
The market clearing price and output are determined at _______________.
price controls
are an attempt to set prices through government involvement in the market
price ceilings
are legally established maximum prices for goods and services
black markets
are illegal markets that arise when price controls are in place
help supply meet demand
black markets develop to __________________
rent control
is a price ceiling that applies to the housing market
price gouging laws
place a temporary ceiling on the prices that sellers can change during times of emergency
price floors
are legally established minimum prices for goods or services
minimum wage law
example of a price floor
nonbonding price floor
price is regulated by supply and demand (price floor is below equilibirum)
binding price floor
creates a surplus (price floor is above equilibrium)
smaller demand than the equilibrium and lower back market price
two unintended consequences of a binding price floor
nonbinding
minimum wage is often _______________.
welfare economics
is the branch of economics that studies how the allocation of resources affects economic wellbeing
consumer surplus
is the difference between the willingness to pay for a good and the price that is paid to get it
producer surplus
is the difference between the willingness to sell a good ad the price that the seller receives
total surplus (social welfare)
is the sum of consumer surplus and producer surplus
efficient
an outcome is ____________ when an allocation of resources maximizes total surplus
equity
refers to the fairness of the distribution of benefits within the society
excise taxes
taxes levied on a particular good or service
incidence
refers to the burden of taxation on the party who pays the taxes through higher prices, regardless of whom the tax is actually levied on
deadweight loss
is the decrease in economic activity caused by market distortion
unemployment
occurs when a worker who is not currently employed is searching for a job without success
unemployment rate
the percentage of the labor force that is unemployed
creative destruction
occurs when the introduction of new products and technologies lead to the end of other industries and jobs
structural unemployment
creative destruction leads to _____________
structural unemployment
is unemployment caused by changes in the industrial makeup of the economy
frictional unemployment
unemployment caused by delays in matching available jobs and workers
unemployment insurance
is a gouvernement program that reduces the hardship of joblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed
cyclical unemployment
unemployment caused by economic downturns
natural rate of unemployment
is the typical rate of unemployment that occurs when the economy is growing normally
number unemployed/labor force x 100
unemployment rate equation
labor force
includes people who are already employed or actively seeking work
discouraged workers
are those who are not working, have looked for a job in the past 12 months and are willing to work, but have not sought employment in the past 4 weeks
underemployed workers
are those who have part-time jobs but who would prefer to work full time
labor force participation rate
the percentage of the population that is in the labor force
invisible hand
the concept that society's goals will be met as individuals seek their own self-interest
inefficiency/ unemployment
point inside the production possibility curve
producing what is efficient
point on the production possibility curve
imposible/ unattainable given current resources
point above the production possibility curve
resources are easily adaptable for producing either good (ex: pizza and calzones)
straight ppc (constant opportunity cost)
as you produce more of a good, the opportunity cost increases
curved ppc
Recommended textbook explanations

Principles of Microeconomics

7th EditionN. Gregory Mankiw
508 explanations

Principles of Microeconomics

8th EditionN. Gregory Mankiw
502 explanations

Macroeconomics

4th EditionCharles I Jones
330 explanations

Principles of Microeconomics

7th EditionN. Gregory Mankiw
507 explanations