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Praxis 2 Social Studies (0081) Micro / Macro Economics

The limited quantities of resources to meet unlimited wants, the condition that results from limited resources combined with unlimited wants.
Comparative Advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
Opportunity Cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another, the most desirable alternative given up as the result of a decision
Production Possibilities Curve
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
Market Price
The price at which buyers and sellers agree to trade. The price determined by supply and demand.
Price Equilibrium
The price at which demand and supply are equal.
Price Elasticity
The measure of how responsive both consumers and producers are to price changes, a measure of consumers price sensitivity e = (percent change in quantity demanded)/(percent change inprice)
Fixed Costs
Costs that do not vary with the quantity of output produced
Variable Costs
Costs that do vary with the quantity of output produced
Average Fixed Cost
The total fixed costs (TFC) divided by the number of units produced. It is the only cost that decreases with production.
Average Variable Cost
Total variable costs divided by the number of units of output.
Marginal Cost
The increase in total cost that arises from an extra unit of production, the increase or decrease in costs as a result of one more or one less unit of output
Law of Diminishing Return
When additonal units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
Total Product
All the goods and services produced by a business during a given period of time with a given amount of input
Average Product
Total output divided by total units of the variable factor of production
Marginal Product
The increase in output that arises from an additional unit of input, the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
Explicit Costs
The actual payments a firm makes to its factors of production and other suppliers.
Implicit Costs
All the firm's opportunity costs of the resources supplied by the firm's owners for which the owners do not make an explicit charge
Accounting Profit
Total revenue minus total explicit cost.
Economic Profit
Total revenue minus total cost, including both explicit and implicit costs
Perfect Competition
A market structure in which a large number of firms all produce the same product. The market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product
Exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices
Monopolistic Competition
Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors.
A market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors. A market structure in which a few large firms dominate a market.
Derived Demand
Demand for business or organizational products (tires) caused by demand for consumer goods of services (autos).
Labor Demand
The relationship between the quantity of labor demanded by firms and the wage.
GDP (Gross Domestic Product)
The total market value of all final goods and services produced annually in an economy
CPI (Consumer Price Index)
An index of the cost of all goods and services to a typical consumer
Price Index
An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
Aggregate Demand
The total demand for goods and services over varying prices within the economy, including componenting such as household consumption, business investment, government spending & net exports., the amount of goods and services in the economy that will be purchased at all possible price levels.
Unemployment Rate
Measures the number of people who are able to work, but do not have a job during a period of time.
Aggregate Supply
The total amount of goods and services in the economy available at all possible price levels
Keynesian Economics
Theory stating that government spending should increase during business slumps and be curbed during booms, economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
Money Demand
A relationship between the interest rate and the quantity of money that people are willing to hold at any given interest rate.
Money Supply
The quantity of money available in the economy
Federal Reserve System
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates
Money Multiplier
The amount of money the banking system generates with each dollar of reserves, the multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio.
An increase in the overall level of prices in the economy
A period of slow economic growth and high unemployment while prices rise (inflation)
The state of the economy declines, A period of an economic contraction, sometimes limited in scope or duration.
Automatic Stablizers
Taxes and transfer payments, Federal government expenditures or receipts that automatically increase or decrease without requiring action by Congress or the President. Examples are unemployment compensation and corporate and individual income tax.
Trade Restrictions
Tariffs and quotas restrict the amount of a good imported and supply will decrease
Captial Account
The net result of public and private international investments flowing in and out of a country. The net results includes foreign direct investment, plus changes in holdings of stocks, bonds, loans, bank accounts, and currencies.
Long Run Phillips Curve
Relationship between the inflation rate and the unemployment rate in the long run, looks at long-term natural rate of unemployment.
Equilbrium Exchange Rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.
Price Level
An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
Protectionist Policy
A way to "protect" or insulate a domestic industry from competition by foreign producers of the same good. import tariff allows domestic producers to both capture a larger share of the domestic market and charge a higher price than would otherwise be possible
Comparative Advantage
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
Absolute Advantage
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.
Balance of Payments Account
National account of international payments and receipts, devided into current account, and capital and financial account
Tade Balance
Is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.
Trade Surplus
When a country exports more than it imports
Trade Deficit
When a country imports more than it exports.
Current Account
That part of the balance of payments recording a nation's exports and imports of goods and services and transfer payments
Foreign Exchange Market
The market in which the currencies of different countries are bought and sold.
Capital Flows
Investment flows per period of time, into and out of a country. EX: Portfolio/FDI
Price Floor
Are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market, with too low of a price and thus their producers deserve some assistance.
Price Ceilings
Are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them.
Diseconomies Of Scale
An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
Economies of Scale
The increase in efficiency of production as the number of goods being produced increases.
Growth Rate
Is the percentage increase or decrease of GDP from the previous measurement cycle. It is annualized so it can be compared to the previous year.
Cost Push Inflation
Occurs when businesses respond to rising production costs, by raising prices in order to maintain their profit margins.
Demand Pull Inflation
Inflation resulting from an increase in aggregate demand. Increases in the following factors: money supply, government purchases, and price level in the rest of the world can impact this.
Nominal Value
The value of something in current dollars without taking into account the effects of inflation.
Real Value
Value in current dollars after adjusting for inflation.
Structural Unemployment
Unemployment that occurs when workers' skills do not match the jobs that are available. Changes in technology and tastes can have an impact on this.
Frictional Unemployment
Is unemployment that comes from people moving between jobs, careers, and locations
Cyclical Unemployment
Unemployment that rises during economic downturns and falls when the economy improves. Getting laid off due to a recession is the classic case of this.
Seasonal Unemployment
Unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season.
Nominal Interest Rate
The interest rate as usually reported without a correction for the effects of inflation.
Real Interest Rate
The interest rate corrected for the effects of inflation.
Fiscal Policy
The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending.
A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate.
Deadweight Loss
The fall in total surplus that results from a market distortion, such as a tax.
Infant Industries
Developing industries that require protection to get started.
Government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition.
Trade Quotas
Restritions to free trade, put a legal limit on the amount that can be imported, creating shortages which cause prices to rise.
Taxes on imports, raise the price of imported goods, which increases the demand and price for the same goods produced by domestic suppliers. Revenues from these are collected by the domestic government.
Prohibit trade with other nations. They bar a foreign nation's imports or ban exports to that nation or both.
Licenses (Trade)
May be required of importers of foreign goods so that imports can be restricted.
Trade Standards
Are laws or regulations establishing health and safety standards for imported goods, frequently much stricter than those applied to domestically produced goods.
Expansionary Monetary Policy
Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.
Expansionary Fiscal Policy
An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output
Progressive Income Tax
The percentage of income paid in taxes will increase as income increases.
A consortium of independent organizations formed to limit competition by controlling the production and distribution of a product or service. ex/ OPEC
A group of diverse companies under common ownership and run as a single organization.
Marginal Propensity
The smaller marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier
Spending Multiplier
The reciprocal of 1 minus the marginal propensity to consume. Or the reciprocal of the marginal propensity to save.
Pure Competition
A firm produces a homogeneous product and is a small part o the total supply such that it cannot influence market price and total output.