macroeconomics chapter 1 and 2 vocabulary words – Flashcards
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Scarcity
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A situation in which unlimited wants exceed the limited resources available to fullfill those wants.
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Economics
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The study of the choices people make to attain their goals given their scarce resources.
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Economic Model
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A simplified version of reality used to analyze real world economic situations.
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Marginal Analysis
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Analysis that involves comparing marginal benefits and marginal costs.
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Trade off
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The idea that because of scarcity, producing more of a good or service means producing less of another good or service.
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Opportunity Cost
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The highest valued alternative that must be given up to engage in an activity.
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Centrally Planned economy
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An economy in which the government decides how economic resources will be allocated.
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Market Economy
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An economy in which the decisions of households and firms interacting in markets allocate economic resources.
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Mixed economy
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An economy in which most economic decisions result from the interatction of buyers and sellers in markets but which the government plays a significant role in the allocation of resources.
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Productive efficiency
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A situation in which a good or service is produced at the lowest possible cost.
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Allocative efficiency
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A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point, where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.
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Voluntary exchange.
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A situation that occurs in the markets when both the buyer and seller of a product are made better off by the transaction.
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Equity
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The fair distribution of economic benefits
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Economic variable
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Something measurable that can have different values, such as the incomes of doctors.
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positive analysis
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analysis concerned with what is
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normative analysis
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analysis concerned with what "ought to be"
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microeconomics
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households and firms make choices, how they interact in markets and how the government attempts to influence their choices
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macroeconomics
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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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production possibilities frontier
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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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opportunity cost
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the highest valued alternative that must be given up to engage in an activity
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economic growth
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the ability of the economy to increase the production of goods and services
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absolute advantage
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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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comparative advantage
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the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
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market
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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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product market
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a market for good--such as computers--or service--such as medical treatment.
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factor market
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a market for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.
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factors of production
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the inputs used to make goods and services
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circular-flow diagram
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a model that illustrates how participants in markets are linked
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free market
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a market with few government restrictions on how a good or service can be produced or sold or on how a factor of production can be employed
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entrepreneur
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someone who operates a business, bringing together the factors of production--labor, capital, and natural resources--to produce goods and services.
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property rights
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the rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.
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perfectly competitive market
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a market that meets the conditions of 1) many buyers an sellers 2)all firs selling identical products, and 3) no barriers to new firms entering the market
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demand schedule
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a table that shows the relationship between the price of a product and the quantity demanded
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quantity demanded
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the amount of a good or service that a consumer is willing and able to purchase at a given price.
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demand curve
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a curve that shows the relationship between the price of a product and the quantity of the product demanded
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market demand
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the demand by all of the consumers of a given good or service
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law of demand
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the rule that holing everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity will decrease (inverse relationship)
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ceteris paribus
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all else equal..The requirement that when analyzing the relationship between two variables--such as price and quantity demanded--other variables must be held constant
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normal good
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a good for which the demand increases as income rises and decreases as income falls
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inferior good
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a good for which the demand increases as income falls and decreases as income rises
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substitutes
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goods and services that can be used for the same purpose
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complements
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goods and services that are used together
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demographics
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the characteristics of a population with respect to age, race, and gender
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quantity supplied
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the amount of a good or service that a firm is willing and able to supply at a given price
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supply schedule
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a table that shows the relationship between the price of a product and the quantity of the product supplied
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supply curve
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a curve that shows the relationship between the price of a product and the quantity of the product supplied
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law of supply
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the rule that, holding everything else constatant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases In the quantity supplied
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technological change
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a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs
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market equilibrium
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a situation in which quantity demanded equals quantity supplied
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competitive market equilibrium
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a market equilibrium with many buyers and many sellers
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surplus
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a situation in which the quantity supplied is greater that the quantity demanded
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shortage
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a situation in which the quantity demanded is greater that the quantity supplied
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business cycle
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alternating periods of economic expansion and economic recession
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expansion
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the period of a business cycle during which total production and total employment are increasing
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recession
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the period of a business cycle during which total production and total employment are decreasing
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economic growth
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the ability of an economy to produce increasing quantities of goods and services
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inflation rate
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the percentage increase in the price level from one year to the next
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gross domestic product GDP
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the market value of all final goods and services produced in a country during a period of time, typically one year
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final good or service
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a good or service purchased by a final user
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intermediate good or service
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a good or service that is an input into another good
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transfer payments
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payments by the government to households for which the gov. does not receive a new good or service in return.
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consumption
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spending by households on goods and services, not including spending on new houses
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investment
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spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by housholds and firms on new houses.
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government purchases
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spending by federal, state, and local governments on goods and services
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net exports
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exports minus imports
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value added
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the market value a firm adds to a product
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underground economy
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buying and selling of goods and services that is concealed from the governmet to avoid taxes or regulations or because the goods and services are illegal
