40 terms

Macroeconomics Unit 1 Review

Based off of Mankiw's Macroeconomics Textbook
STUDY
PLAY
economics
the study of how society manages its scarce resources
efficiency
the property of society getting the most it can from its scarce resources
equality
the property of distributing economic prosperity uniformly among the members of society
externality
the impact of one person's actions on the well-being of a bystander
incentive
something that induces a person to act
inflation
an increase in the overall level of prices in the economy
marginal changes
small incremental adjustments to a plan of action
market failure
a situation in which a market left on its own fails to allocate resources efficiently
opportunity cost
whatever must be given up to obtain some item
productivity
the quantity of goods and services produced from each unit of labor input
rational people
people who systematically and purposefully do the best they can to achieve their objectives
scarcity
the limited nature of society's resources
circular-flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
microeconomics
the study of how households and firms make decisions and how they interact in markets
normative statements
claims that attempt to prescribe how the world should be
positive statements
claims that attempt to describe the world as it is
production possibilities frontier
a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
absolute advantage
the ability to produce a good using fewer inputs than another producer
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer
exports
goods produced domestically and sold abroad
imports
goods produced abroad and sold domestically
competitive market
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
demand curve
a graph of the relationship between the price of a good and the quantity demanded
equilibrium
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
inferior good
a good for which, other things equal, an increase in income leads to a decrease in demand
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
market
a group of buyers and sellers of a particular good or service
normal good
a good for which, other things equal, an increase in income leads to an increase in demand
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to sell
shortage
a situation in which quantity demanded is greater than quantity supplied
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
supply curve
a graph of the relationship between the price of a good and the quantity supplied
surplus
a situation in which quantity supplied is greater than quantity demanded
price ceiling
a legal maximum on the price at which a good can be sold
price floor
a legal minimum on the price at which a good can be sold
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