Principles of Macroeconomics chapters 1-6 – Flashcards
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Opportunity Cost
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the best alternative that we forgo
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Scarce
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limited
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Marginal
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incremental, additional, or extra; used to describe result of change in an economic value
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Marginalize
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as a rational decision maker will change the status quo as long as your eexpected expected marginal benefit from the changes exceeds marginal cost
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Efficient Market
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a market in which profit opportunities are eliminated almost instantaneously
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Understanding Society
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social freedom, religious freedom, political freedom and economic freedom
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Understanding Global Affairs
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competative advantage, free trade, global competition
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Micro
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examines functions of individual industries. behavior of decision making units firms and households
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Macro
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examines behavior of aggregates income, employment and outputs
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Aggregate
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total
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Positive
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factual. what it exists and how it works
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Normative
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opinion. analyzes outcome of economic behavior
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Ceter is Paribus
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all else equal, or other things constant
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Post hoc, ergo proctor hoc
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if event A happens before event B, it is not neccesarily true that A caused B
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Fallocy of Composition
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the erroneous belief that what is true for a part is necessarily true for the whole world
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Secondary Effect
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unintended consequences of economic actions that may develop slowly overtime as people react to event
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Efficiency
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producing what people want at the least possible costs
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Equity
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fairness
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Economic Growth
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an increase in total output in the economy
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Stability
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a condition in which output is steady or growing with low inflation and full employment of resources
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Factors of Production
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includes land, labor, capital
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Production
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the process by which resources are transformed into useful forms (goods and services)
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Resources or inputs
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anything provided by nature or previous generations that can be used directly or indirectly to satisfy human wants
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Capital
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things that have already been provided that turn used to produce other goods and services
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Needs vs. Wants
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absolute requirements or necessities vs. desires and dreams
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Theory of Comparative Advantage
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David Ricardo. Specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers
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Specialization
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individual, firm or country with the lowest opportunity cost of producing a particular good should specialize in that good
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Absolute Advantage
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if the production of a good or service can produce the good or service using fewer resources, including time
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Production Possibility Frontier
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graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology
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Trade Off
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getting more of one good requires sacrificing some of the other
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Marginal Rate of Transformation
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the value of the slope of a society's ppf (opportunity cost)
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Laissez-faire Economy
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implies a complete lack of government interaction in the economy
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Free Enterprise
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means the freedom of individuals to start private businesses in search of profits
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Entrepreneur
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someone who organizes, manages, and assumes the risks of a firm
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Households
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consuming units in an economy
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Firm
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an organization that transforms resources
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Labor Market
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households supplying resources... labor
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Capital Market
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households supply funds that firms use to buy capital goods
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Land Market
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households supply land or other real property in exchange for rent
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Private Good
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a good that is both rival in consumption and exclusive in unavailable for another person to consume
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Exclusive
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the supplies can exclude those who fail to pay
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Public Good
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a good that is available for all to consume regardless of who pays and who doesn't
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Externality
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doesn't affect those in transaction, rather the consumers uninvolved either positively or negatively
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Market
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institutions through which buyers and sellers interact and engage in exchange
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Demand Schedule
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shows how much of a product a person or household is willing to purchase per time period at different prices
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Quantity Demanded
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the amount of a product that a household would buy in a given period if it could by all it wanted at a current market price
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Law of Demand
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the negative relationship between price and quantity demanded: Price goes up, quantity decreases... Price goes down, quantity increases
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Law of Diminishing Marginal Utility
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as we consume more of a product within a given period of time, it is likely that each additional unit consumed will yield successively less satisfaction.
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Normal Good
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when income goes up, demand goes up. positive
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Inferior Good
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when income goes up, demand falls. negative
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Substitute Good
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goods that serve as replacements for one another. price of one increases, demand for another increases
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Perfect Substitutes
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identical products
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Complements
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goods that go together. a decrease in the price of one results in an increase in the demand for the other
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Quantity Demanded vs Demand
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shift among curve vs. shift in curve
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Quantity Supply
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amount of a particular product that a firm would be wlling and able to offer for sale at a particular price during a given period of time
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Law of Supply
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positive relationship between price and quantity of a good supplied. an increase in market price will lead to increase in quantity suppled. decrease leads to decrease
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Market Equilibrium
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when QS and QD are equal. at equilibrium point thre is no tendency for price to change
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Excess Demand
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shortage. QD;QS
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Excess Supply
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surplus. QS;QD
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Price Rationing
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process by which market system allocates goods and services to customers when QD;QS
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Constraints
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difficult, costly, have unintended values
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Price Ceiling
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a maximum price that sellers may charge for a good, usually set by government. To be effective, must be set below the equilibrium
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Price Floor
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a minimum price that sellers may charge for a good, usually set by government. To be effective, must be set above the equilibrium.
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Alternatives to Price Rationing
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queing, favored customers, ration coupons
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Black Market
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illegal trading takes place at market determined prices.
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Allocation of Resources
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price market changes result from shifts in demand in output markets. profits rise or fall respectively. demand for labor rise or fall respectively. wage rise or fall respectively. higher wages attract or lower wages deter labor.
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Consumer Surplus
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when the price is lower than what they would be willing to pay
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Producer Surplus
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when the price is higher than what they would be willing to sell their product for
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Deadweight Loss
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created by inefficiency in the market
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Microeconomics
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examines the functioning of individual industries and the behavior of individual decision making units, typically firms and households
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Macroeconomics
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focuses on the determinants of the total national output
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Aggregate Behavior
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behavior of all households as well as the behavior of all firms
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Sticky Prices
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are prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded
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Stagflation
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occurs when overall price levels apidly rise during periods of recession or high and persistent unemployment
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Inflation
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increase in the overall price level
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Hyperinflation
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period of very rapid increases in the overall price level
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Business Cycle
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cycle of short term ups and downs in the economy. Peak high point. Troff low point. Peak to peak or troff to troff.
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Aggregate Output
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the total of quantity of goods and services produced in an economy in a given period
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Recession
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a period during which aggregate output declines (two consecutive quarters)
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Depression
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a prolonged deep recession
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Unemployment Rate
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the percentage of labor force that is unemployed
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Fiscal Policy
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government's decisions about how much to tax and spend
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Monetary Policy
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tools used by Fed to control money supply
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Supply Side Policy
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focusing on aggregate totals
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Gross National Product (GDP)
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the total market value of all final goods and services
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Durable Goods
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last a relatively long time
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Nondurable goods
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used up fairly quickly
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Services
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things we buy that do not involve the production of physical items
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Nominal GDP
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gross domestic product measured in current dollars
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Real GDP
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factos out inflation
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Based year approach
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the year chosen for the weights in a fixed weight procedure
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Fixed weight Procedure
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a procedure that uses weights from a base given year
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Gross Private Domestic Investment
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total investment in capital that is, the purchase of new housing, plants, equipment, and inventory by the private (or nongovernment) sector.
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Government Consumption and Gross Investment
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includes expenditures by federal, state and local governments for final goods and services.
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Next Exporta
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value of next exports difference between exports and imports.
