question

Microeconomics

answer

study of the individual units that make up the economy

question

Macroeconomics

answer

study of the overall aspects and working of an economy

question

Economics

answer

study of how people allocate limited resources to satisfy unlimited wanted

question

Scarcity

answer

limited nature of resources, given wants and needs

question

Incentives

answer

factors that motivate a person to act or exert effort

question

Opportunity Cost

answer

highest-valued alternative that must be sacrificed in order to get something else

question

Economic Thinking

answer

purposeful evaluation of the available opportunities to make the best decision

question

Marginal Thinking

answer

requires decision-makers to evaluate whether the benefit of one more unit of something is greater than the cost

question

Markets

answer

bring buyers and sellers together to exchange goods and services

question

Trade

answer

voluntary exchange of goods and services between two or more parties

question

Comparative Advantage

answer

when an individual, business, or country can produce at a lower opportunity cost than a competitor can

question

Direct Incentives

answer

easy to recognize - intentional

question

Indirect Incentives

answer

harder to recognize - unintentional

question

Positive Incentives

answer

encourages action through reward

question

Negative Incentives

answer

encourages action through consequence

question

Unintended Consequence

answer

unplanned result of an incentive - usually negative

question

Trade-off

answer

what is lost from a chosen decision - "You'll be more susceptible to knives and gunfire"

question

Positive Statement

answer

opinion that cannot be tested or validated - describes "what is"

question

Normative Statement

answer

opinion that cannot be tested or validated - describes "what ought to be"

question

Ceteris Paribus

answer

Latin for "other things being equal" - examines a change in one variable while holding everything else constant

question

Endogenous Factors

answer

variables that can be controlled within a model

question

Exogenous Factors

answer

variables that cannot be controlled within a model

question

Production Possibilities Frontier (PPF)

answer

model that illustrates the combinations of outputs that can be produced if all resources are used efficiently

question

Law of Increasing Relative Cost

answer

opportunity cost of producing a good rises as more of the good is produced

question

Absolute Advantage

answer

ability of one producer to make more than another producer with the same quantity of resources

question

Consumer Goods

answer

produced for present consumption

question

Capital Goods

answer

help produce future goods and services that are valuable

question

Investment

answer

process of using resources to create or buy new capital

question

Variable

answer

quantity that can take on more than one value

question

Scatterplot

answer

graph that shows individual (x,y) points

question

Positive Correlation

answer

occurs when two variables move in the same direction

question

Negative Correlation

answer

occurs when two variables move in opposite directions

question

Slope

answer

change in the rise (y) divide by the change in the run (x)

question

Causality

answer

occurs when one variable influences the other

question

Reverse Causation

answer

occurs when causation is incorrectly assigned among associated events

question

Market Economy

answer

resources are allocated among households and firms with little or no government interference

question

Competitive Market

answer

when so many buyers and sellers exist that each only makes a small impact on the market price and output

question

Imperfect Market

answer

either the buyer or the seller has an influence on the market price

question

Monopoly

answer

a single company that supplies the entire market for a particular good or service

question

Quantity Demanded

answer

amount of a good or service that buyers are willing or able to purchase at the current price

question

Law of Demand

answer

with all other things equal, quantity demanded falls when price rises, and rises when price falls

question

Demand Schedule

answer

table that shows the relationship between the price and quantity demanded of a good

question

Demand Curve

answer

graph showing the relationship between prices and quantity demanded

question

Market Demand

answer

sum of all the individual quantities demanded by each buyer in the market at each price

question

Normal Good

answer

purchased when income rises - out of choice

question

Inferior Good

answer

purchased out of necessity, rather than choice

question

Compliments

answer

two goods that are used together

question

Substitutes

answer

goods used in place of other goods

question

Quantity Supplied

answer

amount of a good o service willingly produced or sold at the current price

question

Law of Supply

answer

with all other things equal, the quantity supplied of good rises when price rises, and falls when price falls

question

Supply Schedule

answer

table showing the relationship between the price and quantity supplied of a good

question

Supply Curve

answer

graph showing the relationship between the price and quantity supplied of a good

question

Market Supply

answer

sum of quantities supplied by each seller at each price

question

Inputs

answer

resources used in production processes

question

Equilibrium

answer

where the demand and supply curves intersect

question

Equilibrium Price

answer

quantity demanded = quantity supplied in terms of price

question

Equilibrium Quantity

answer

quantity demanded = quantity supplied in terms of quantity itself

question

Law of Supply and Demand

answer

market price ($) of any good will adjust to equalize QD vs. QS

question

Shortage

answer

quantity demanded > quantity supplied

question

Surplus

answer

quantity demanded < quantity supplied

question

Rent

answer

supply price minus marginal product

question

Price Controls

answer

attempts to set prices through government involvement in the market

question

Price Ceiling

answer

legally established maximum price for a good or service

question

Black Market

answer

illegal markets that arise when price controls are in place

question

Rent Control

answer

price ceiling that applies to the housing market

question

Price Gouging Laws

answer

place a temporary ceiling on prices that sellers can charge during times of emergency

question

Price Floor

answer

legally established minimum price for a good or service

question

Minimum Wage

answer

lowest hourly wage that firms can legally pay workers

question

Welfare Economics

answer

studies how the allocation of resources affects economic wellbeing

question

Willingness To Pay

answer

maximum price a consumer is willing to pay for a good or service

question

Consumer Surplus

answer

difference between the willingness to pay for a good, and the price paid to get it

question

Willingness to Sell

answer

minimum price a seller will accept to sell a good or service

question

Producer Surplus

answer

difference between the willingness to sell a good, and the price received for it

question

Total Surplus (Social Welfare)

answer

sum of consumer surplus and producer surplus

question

Efficient

answer

outcome where allocation of resources maximizes total surplus

question

Nonbinding Price Ceiling

answer

when the legally established maximum price is above equilibrium price

question

Binding Price Ceiling

answer

when the legally established maximum price is below the equilibrium price

question

Nonbinding Price Floor

answer

when the legally minimum established price is below the equilibrium price

question

Binding Price Floor

answer

when the legally established minimum price is above the equilibrium price

question

Factors of Production

answer

1. Land - 2. Labor - 3. Capital

question

Total Product

answer

total output of goods and services

question

Marginal Product

answer

output of goods and services by each additional producer (worker)

question

Total Cost

answer

cost of producing total output of a good or service

question

Marginal Cost

answer

cost of producing each additional unit of a good or service - can increase or decrease

question

Marginal Revenue

answer

profit of producing each additional output of a good or service

question

Fixed Cost

answer

does not depend on the quantity of output produced - cost of fixed input

question

Variable Cost

answer

depends on the quantity of output produced - cost of variable input

question

Spreading Effect

answer

when output is large, average fixed cost lowers

question

Average Fixed Cost

answer

cost of producing each unit of output - fixed

question

Average Variable Cost

answer

cost of producing each unit of output - variable

question

Diminishing Returns Effect

answer

when output is large, average variable cost increases

question

Equity

answer

fairness of the distribution of benefits within society

question

Excise Taxes

answer

taxes levied on a particular good or service

question

Incidence

answer

burden of taxation on those who pay tax through high prices, regardless of who the tax is levied on

question

Deadweight Loss

answer

decrease in economic activity caused by market distortions

question

Gross Domestic Product (GDP)

answer

market value of all final goods and services produced within a 12 month period

question

Per Capita GDP

answer

gross domestic product (GDP) per individual person

question

Inflation

answer

growth in the overall level of prices in an economy

question

Real GPD

answer

gross domestic product (GDP) adjusted for changes in prices - often measured with constant dollars

question

Economic Growth

answer

measured as percentage change in real per capita GDP

question

Recession

answer

short-term economic downturn - occurs when the economy output declines for two quarters

question

Great Recession

answer

U.S. recession from December 2008 to June 2009

question

Business Cycle

answer

short-run fluctuation in economic activity

question

Economic Expansion

answer

phase of the business cycle when the economy grows unusually fast

question

Economic Contraction

answer

phase of the business cycle when the economy grows unusually slow

question

Service

answer

output that provides benefits without producing a tangible product

question

Immediate Good

answer

good that firms repackage/bundle with other goods for sale later on

question

Final Good

answer

good sold to final users

question

Gross National Product (GNP)

answer

output produced by workers and resources owned by residents of the nation

question

Consumption (C)

answer

proponent of GDP - purchase of final goods and services by households - excludes additional housing purchases

question

Investment (I)

answer

proponent of GDP - private spending on tools, plant, and equipment used to produce future output

question

Government Spending (G)

answer

proponent of GDP - includes spending by all levels of government on final goods and services

question

Net Exports (NX)

answer

proponent of GDP - determined by subtracting imports from exports of final goods and services

question

Nominal GDP

answer

gross domestic product measured in current prices - not adjusted for inflation

question

Price Level

answer

index of the average price of goods and services throughout the economy

question

GDP Deflator

answer

measure of the price level that includes prices of the final goods and services included in GDP - price level growth rate

question

Real GDP Formula

answer

Nominal GDP/Price Level x 100

question

Break Even Point (Price)

answer

sales amount — in either unit or revenue terms — that is required to cover total costs (both fixed and variable)

question

Periodic Cycling

answer

irregular cycling between expansion and contraction of the economy

question

Classical Economics

answer

- recessions heals themselves quickly - government involvement makes things worse - explained with "straight" SRAS - policies favored by Senior Management

question

Keynesian Economics

answer

- recessions can persist for a long time - government involvement prevents social hardships - explained with "kinked" SRAS - policies favored by labor

question

Durable Goods

answer

goods consumed over a short period of time

question

Inventory

answer

stocks of goods firms use to produce a product in the future

question

Growth Rate

answer

determines how fast the economy is growing

question

What GDP Does NOT

answer

- count good/bad - count ecological costs - count home production - count illegal activities

question

Unemployment

answer

when a worker is not currently employed - searches for jobs without success

question

Unemployment Rate

answer

percentage of the labor force that is unemployed

question

Creative Destruction

answer

introduction of new products and technologies leads to the end of other industries and jobs

question

Structural Unemployment

answer

caused by changes in industrial makeup (structure) of the economy

question

Frictional Unemployment

answer

caused by delays in matching available jobs and workers

question

Unemployment Insurance

answer

government program that reduces the hardship of joblessness by guaranteeing a percentage of former income while unemployed

question

Cyclical Unemployment

answer

caused by economic downturns (recessions)

question

Natural Rate of Unemployment (U*)

answer

typical rate of unemployment - occurs when the economy is growing normally

question

Full Employment Output (Y*)

answer

output level produced in an economy when unemployment = natural rate

question

Labor Force

answer

people who are employed or actively seeking work

question

Discouraged Workers

answer

not working, have looked for a job in the past 12 months - willing to work, but have not sought out employment in 4 weeks

question

Underemployed Workers

answer

have part-time jobs but prefer full-time employment

question

Labor Force Participation Rate

answer

percentage of the population in the labor force

question

Elasticity

answer

numerical measure of the responsiveness of QD to QS or one of its determinants

question

Price Elasticity of Demand

answer

measures how much QD responds to a change in price

Macro Economics Midterm 1 Review (Chapters 1 – 7) – Flashcards

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