Flashcards About Macro Econ Ch. 1
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Delta change dealing with slope
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Triangle means
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To distribute or designate
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Allocation
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The idea that because of scarcity, producing more of one good or service means producing less of another good or service
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Trade off
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The highest valued alternative that must be given up to engage in an activity
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Oppurtunity Cost
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What goods and services will be produced How will the goods and services be produced Who will recieve the goods and services produced
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Trade offs force society to make choices whan answering the following the fundamental questions
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The additional satisfaction or utility that a person receives from consuming an additional unit of a good or service.
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MB
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The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output. More formally, the marginal cost is the derivative of total production costs with respect to the level of output. Whatever you are giving to recieve the MB
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MC
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When production is in accordance with consumer preferences, until MB = MC
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Allocation efficency
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When a good or service is produced at the lowest possible cost
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Productive efficency
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The people and firms interacting in markets allocate economic resources
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Market economy
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The government decides how economic resources will be allocated
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Command/Central economy
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Mixture of Central/Command and Market
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Mixed economy
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MC
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MB =
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Marginal
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Extra, More, Additional most likely means
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both the buyer and seller of a product are made better off by the transaction
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Voluntary exchange
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Fair distribution of economic benefits
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Equity
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Opinion
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Fair is a
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Market Economy
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Which type of economy allocates the best
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1-Decide on the assumptions to use in developing the model 2- Formulate a testable hypothesis 3- Use economic data to test the hypothesis 4-Revise the model if it fails to explain well the economic data 5- Retain the revised model to help answer similar economic questions in the future
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To develop a model economists generally follow these steps
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Economic models make behavioral assumptions about the motives of consumers and firms Economists assume that consumers will buy the goods and services that will maximize their well-being or their satisfaction Economists assume that firms act to maximize their profits
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The Role of assumptions in economic models
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Something measurable that can have different values, such as wages paid to software programmers
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Economic variable
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What is
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Positive analysis
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What ought to be
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Normative analysis
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Politics
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What is always usually Normative
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Economists assume that consumers use all available information as they act to achieve their goals. They weigh the benefits and costs of each action.
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Rationality
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A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
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Market
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A situation in which unlimited wants exceed the limited resources available to fulfill those wants
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Scarcity
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...
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Optimal efficency
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The study of the choices consumers, business managers, and government officials make to attain their goals, given their scarce(limited) resouces
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What is economics
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Because no matter what situation we are faced with, our resources are scarce, Because we live in a world of scarcity
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Why do we have economics
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False
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Values should affect someones opinions or decisions of others True or False
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A simplified version of reality used to analyze real world economic situations
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Economic Models
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Consumers and firms consistently respond to economic incentives such as tax deductions, Government giving money for hybrid cars
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Economic Incentive
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Comparing MB and MC
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Marginal analysis
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The study of households and firms make choices, how they interact in markets, and how the government attempts to influence their choices
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Micro-Economics
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The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth
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Macro-Economics
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Someone who operates a business
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Enrepreneur
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The practical application of an invention
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Innovation
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Process firms use to produce goods and services
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Technology
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Company or business, organizagion that produces goods or services
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Firm
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Goods are tangible merchandise, such as books, things you can touch(objects)
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Goods
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Activities done for others
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Services
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Total amount received for selling a good or service
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Revenue
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Difference between the revenue and cost
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Profit
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All persons occupying a home
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Household
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firms use factors of production to produce good and services, such as Labor, capital, natural resources and entrepreneurial ability
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Factors of production or economic resources
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manufactured goods that are used to produce other goods and services such as computers, factory buildings, machine tools, warehouses, and trucks
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Capital
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Accumulated training and skills and worker possesses
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Human Capital
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People are rational People respond to economic incentives Optimal decisions are made at the margin
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Three Key Economic Ideas
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Slope= change in value on the vertical axis over change in value on the horizontal axis
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Slope Formula
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PC= value in second period(newer) - value in first period over value in first period X 100
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Percent Change formula
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Base X Height
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Area of Rectangle
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1/2 x base x height
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Area of Triangle
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weighing the costs and benefits of a decision before deciding if it should be pursued
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Making Optimal decisions at the margin requires
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That consumers value most
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Allocative efficiency is achieved when firms produce goods and services
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Allocative efficiency
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Voluntary exchange between buyers and sellers generates _______ in a marker economy
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What goods and services to produce; how will these goods and services be produced; and who receives them?
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The three fundamental questions that any economy must address are
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False
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Optimal decisions are made at the point where marginal cost equals zero
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Portray reality in all its minute details
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Economic models do all of the following except
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when some previously unemployed workers find jobs
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Society faces a trade-off in all of the following situations except
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Marginal
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In economics, the term _________ means additional or extra
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Model
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An economic _______ is a simplified version of some aspect of economic life used to analyze an economic issue
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Marginal Revenue
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A grocery stor sells a bag of potatoes at a fixed price of 2.30 Which term is used by economists to describe the money received from the sale of an additional bag of potatoes?
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False
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Positive analysis is concerned with what ought to be, while normative analysis is concerned with what is
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In any arena that brings together buyers and sellers
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Where do economic agents such as individuals, firms and nations, interact with each other?
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Yes, it was a voluntary exchange that benefited both parties
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Political Candidates often hold fund raisers by charging per plate for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Is this transaction economically efficient?
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Marginal benefit equals the marginal Cost
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Economists reason that the optimal decision is to continue any activity up to the point where the
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The choices people make to attain their goals, given their scarce resources
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By definition, economics is the study of
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The price of gasoline is too high
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Ex. of a normative statement
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The economy as a whole
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Macroeconomics is the study of
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Consumers and Firms choosing which goods and services to buy or produce
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The decision about what goods and services will be produced made in a market economy is made by
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Rationally
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Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave _________, meaning they make the best decisions given their knowledge of the costs and benefits
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At least $125,000
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Arlene quits her $125,000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?
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A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
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Production Possibilities Frontier(PPF)
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The ability of the economy to increase the production of goods and services
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Economic Growth
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The acto of buying and selling
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Trade
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The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
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Absolute Advantage
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The ability of an individual, a firm, or a country to produce a good or service at a lower oppourtunity cost than competitors
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Comparative advantage
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Individuals, firms, and countries are better off if they specialize in producing goods and services for which they have a comparative advantage and obtain the other goods and services they need by trading.
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Specialization
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Markets for goods, such as computers and services such as medical treatment
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Product Markets
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Markets for the factors of production, such as labor, capital, natural resorces, and entrepreneurial ability.
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Factor Markets
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The inputs used to make goods and services
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Factors of production
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all types of work, from the part-time labor of teenagers working at McDonalds to the work of top managers in large corporations.
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Labor
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Refers to physical captal, such as computers and machine tools, that is used to produce other goods.
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Capital
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Include land, water, oil, iron ore, and other raw materials that are used in producing goods.
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Natural resources
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Someone who operates a business
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Entrepreneur
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the ability to bring together the other factors of production to successfully produce and sell goods and services
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Entrepreneutial ability
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A model that illustrates how participants in markets are linked
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Circular-flow diagram
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the rights individuals of fims have to the exclusive use of their property, including the right to by or sell it.
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property rights
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If property rights are not well enforced, fewer goods and services will be produced. This reduces economic efficiency, leaving the economy inside its production possibilites frontier
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Enforcement of Contracts and Property Rights
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...
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Increasing marginal opportunity costs
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Weighing the costs and benefits of a decision before deciding if it should be pursued
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Making optimal decisions "at the margin" requires
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That consumers value most
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Allocative efficiency is achieved when firms produce goods and services
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Allocative Efficiency
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Voluntary exchange between buyers and sellers generates ______ in a market economy
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What goods and services to produce, how will these goods and services be produced, and who receives them
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The three fundamental questions that any economy must address are
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False
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Optimal decisions are made at the point where marginal cost equals zero
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Portray reality in all its minute details
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Economic models do all of the following except
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when some previously unemployed workers find jobs
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Society faces a trade off in all of the following situations except
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Marginal
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In economics, the term _______ meas "additional" or "extra"
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Model
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An economic ________ is a simplified version of some aspect of economic life used to analyze an economic issue
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Marginal Revenue
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A grocery store sells a bag of potatoes at a fixed price of $2.30. Which of following is a term used by economists to descrive the money received from the sale of an additional bag of potatoes
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False
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Positive analysis is concerned with "What ought to be", while normative analysis is concerned with "what is"
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In any arena that brings together buyers and sellers
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Where do economic agents such as individuals, firms and nations, interact with each other
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Yes, it was a voluntary exchange that benefited both parties
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Political candidates often hold fund raisers by charging "per plate" for dinner. Wendy purchased four tickets to a $1,000 per plate dinner for a local city council candidate. Is this transaction economically efficient?
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Marginal benefit equals the marginal cost
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Economists reason that the optimal decision is to continue any activity up to the point where the
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The choices people make to attain their goals, given their scarce resouces
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By definition, economics is the study of
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The price of gasoline is too high
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Example of the following is a normative economic statement?
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The economy as a whole
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Macroeconomics is the study of
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Consumers and firms choosing which goods and services to buy or produce
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The decision about what goods and services will be produced made in a market economy is made by
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Rationally
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Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave _____, meaning they make the best decisions given their knowledge of the costs and benefits.
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at least $125,000
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Arlene quits her $125,000 a year job to take care of her ailing parents. What is the opportunity cost of her decision?
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...
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What does "marginal" mean in economics?
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...
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At what point do economists say an optimal decision to continue and activity will be made to?
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...
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What are the 3 fundamental questions every economy must address?
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...
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Who makes the decisions on what goods and services will be produced? (p 8)
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...
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What does voluntary exchange generate?
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...
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Where to economic agents interact?
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...
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What does making decisions at the margin mean?
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...
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What is normative and positive analysis? The differences?
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...
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Be able to pick from multiple choice: what the correct opportunity cost is, what is or isn't a normative or positive statement, what economic models assume.
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Only one company that sells a particular product
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Monopoly
