Microeconomics And Macroeconomics Test Questions – Flashcards
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Temporary unemployment while transitioning between jobs or just entering the labor market; typically short in duration but always present in a market economy.
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Frictional unemployment
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Unemployment due to skills no longer being in demand where workers live; typically leads to longer duration and need to acquire training or relocation.
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Structural unemployment
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Unemployment due to a recession.
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Cyclical unemployment
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Unemployment due to real wages being too high (e.g., through minimum wage laws).
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Classical unemployment
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Total of unemployed workers divided by the total labor force.
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Unemployment rate
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Sum of the rates of frictional, structural, and classical unemployment (i.e., excludes cyclical unemployment)
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Natural rate of unemployment
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Another term for natural rate of unemployment; assumed to be more stable than the total unemployment rate.
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Voluntary unemployment
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When the unemployment rate equals the natural rate of unemployment and cyclical unemployment is zero.
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Full employment
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Wage per unit of time in the currency used by a country; i.e., wage.
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Nominal wage
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Total revenue from all sources over a period of time
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Income
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Average wage for all employed individuals.
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Wage level
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Nominal wage divided by a price index
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Real wage
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A unit which adds value to products.
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Firm
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Difference between the revenue and the cost of goods sold.
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Value-added
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Private sector total income
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National income
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National income minus net tax.
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Disposable income
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Total expenditure by government on goods and services.
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Government expenditure
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When government spending equals net taxes.
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Balanced budget
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Amount of money the rest of the world borrows from a country; exports minus imports
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Net exports
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Manufactured goods used to produce other goods and services and are not used up in the production process.
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Capital
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Sometimes divided into physical capital and immaterial capital such as individual capital and social capital.
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Fixed capital
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Bank deposits, stocks, bonds, and other assets.
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Financial capital
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Talent, skills, and knowledge.
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Individual capital
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All finished goods produced but not consumed.
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Gross investment
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Total amount of investment in fixed capital.
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Gross fixed investment
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Gross investment minus depreciation
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Net investment
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The market value of all finished goods and services produced in a country during a certain period of time
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Gross Domestic Product (GDP)
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Goods and services sold directly to the consumer
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Finished goods and services
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GDP adjusted for inflation, divided by a price index
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Real GDP
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Price index that measures the price evolution of a market basket whose composition is close to the composition of GDP
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GDP deflator
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GDP that is not adjusted for inflation
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Nominal GDP
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Percentage change in nominal GDP over a specific period of time
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Nominal GDP growth
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How much the economy has grown over a particular period when the effect of inflation has been removed; percentage change in real GDP
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Real GDP growth
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The value of money in one place versus another, which affects how it can be used
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Purchasing power
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A weighted average of the prices of all goods and services
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Price level
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An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
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Price index
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An index of the cost of all goods and services to a typical consumer
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Consumer Price Index
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A market basket of all the goods and services consumed in a country
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CPI basket
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A percentage increase in price level
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Inflation
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A percentage decrease in price level; negative inflation
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Deflation
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A market with only one seller.
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Monopoly
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Setting the price lower than the monopoly price to keep competitors out.
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Limit pricing
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Ability to affect the price.
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Market power
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Maximum legal price that can be charged for a product or service.
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Price ceiling
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Charging different prices to different customers.
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Price discrimination
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Maximum price a buyer is willing to pay.
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Reservation price
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The theory that studies decision making in situations in which one player anticipates the reactions of other players to its own actions. Firms are mutually interdependent.
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Game theory
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A concept for solving games that states that each player has a set of strategies, and these strategies should be that no player can improve her utility by unilaterally changing her own strategy.
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Nash equilibrium
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A market with only a few sellers.
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Oligopoly
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A market with only two sellers.
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Duopoly
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Prices that are resistant to change.
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Sticky prices
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A market structure with many producers selling products that are not identical but are close substitutes and with no barriers to entry.
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Monopolistic competition
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in production theory, the cost of using resources versus how much they could have been worth if we had used them for the best alternative
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Opportunity Cost
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Costs that do not vary with the quantity of output produced
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Fixed costs
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Costs that vary with the quantity of output produced
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Variable costs
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The sum of the fixed and variable costs for any given level of production
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Total costs
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Total cost divided by total output
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Average Total Cost (ATC)
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Total variable costs divided by quantity of output
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Average Variable Cost (AVC)
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Total fixed costs divided by the quantity of output
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Average Fixed Cost (AFC)
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The increase in total cost that results from producing 1 more unit of output; marginal costs reflect changes in variable costs.
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Marginal Cost (MC)
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All combinations of inputs that cost the same
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Isocost line
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Price per one hour of work
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Wage rate
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Price of one unit of capital
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Rental rate
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How much one can produce at different costs
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Expansion path
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The more one produces, the lower the cost per unit
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Economies of scale
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The more one products, the higher the cost per unit
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Diseconomies of scale
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How many independent agents there are in a market
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Concentration
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How big the differences there are between products
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Product differentiation
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Things that make it impossible or excessively costly to enter a market
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Barriers to entry
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An agent that takes prices as given
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Price takers
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Identical products
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Homogenous products
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Several producers who cooperate on prices or quantities
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Cartel
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Total cost for producing a certain quantity of a good
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Total cost
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Total income from selling a certain quantity of a good
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Total revenue
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Difference between revenue and cost
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Profit
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Additional revenue a firm receives from selling one more unit
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Marginal revenue
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Additional cost a firm incurs from producing one more unit
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Marginal cost
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Condition under which it is better to produce nothing rather than produce something; when marginal revenue is less than average variable cost
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Shut down condition
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Condition when the firm is paid more for the good than it costs to produce it; supernormal profit
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Excess profit
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Condition when the firm is paid what it costs to produce the good; i.e., breaks even
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Normal profit
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What a producer uses to produce goods: labor, capital, and raw materials
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Input
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What a firm is paid for goods and services
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Revenue
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The quantity of goods that, on average, is produced per hour or per unit of capital
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Average product
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How much the quantity produced increases if either labor or capital is increased by one unit
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Marginal product
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The period of time during production in which some costs are fixed
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Short run
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The period of time during production in which all costs are variable
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Long run
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In the long run, increasing inputs (labor or capital) produces fewer output
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Law of diminishing returns
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Curve that shows different combinations of labor and capital that produce the same quantity of a single good
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Isoquant curve
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The amount of capital one has to add to production if one reduces labor with one unit but still wishes to product the same quantity; the slope of the isoquant curve.
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Marginal rate of technical substitution (MRTS)
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How much the quantity produced changes by changing one of the inputs
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Returns to scale
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The amount of money, or wealth, a consumer has access to.
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Budget
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A measure of how satisfied a consumer is.
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Utility
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To choose in such a way that one gets as much as possible of something else.
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Maximize
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A combination of goods and services; basket or bundle of goods.
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Market Basket
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A graphical description of the baskets a consumer can buy, given a certain budget.
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Budget line
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The slope of the budget line, describes what you need to give up of one good to obtain more of another good in your basket.
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Marginal rate of transformation (MRT)
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Comparison of baskets of goods and services arranged by preference.
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Preference order
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Quality of having no preference between one basket of goods over another.
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Indifference
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Costs, apart from the buying and selling price of a good or service, associated with buying or selling it.
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Transaction costs
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A curve showing different combinations of two goods between which a customer is indifferent. Similar to elevation curves on a map.
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Indifference curve
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The slope of the indifference curve, describes how much an individual is willing to pay for an additional unit of a good in terms of another good (rather than money).
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Marginal rate of substitution (MRS)
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An infinitely small change, usually speaking of change in one unit.
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Marginal
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Two goods that are possible to use interchangeably, so that a consumer is indifferent between them, causing the indifference curve to be a straight line.
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Perfect substitutes
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Goods that go together, so that a consumer needs them both to have any use of them, causing the indifference curves to be L-shaped.
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Complementary goods
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A curve showing the demand for the whole market at different prices
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Market demand curve
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Measure of how sensitive a variable is to changes in another variable
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Elasticity
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How sensitive demand is to changes in price
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Price elasticity of demand
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When the quantity demanded decreases more than the price increases
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Elastic demand
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When the quantity demanded decreases less than the price increases
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Inelastic demand
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How sensitive demand is to changes in income
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Income elasticity of demand
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Goods one buys more of when income increases
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Normal goods
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Goods one buys less of when income increases
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Inferior goods
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Goods one buys more of when income increases, but at a lower percentage than the percentage increase in income
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Necessary goods
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Goods one buys more of when income increases, but at a higher percentage than the percentage increase in income
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Luxury goods
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How sensitive demand of one good is to price changes in another good
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Cross-price elasticity
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The effect on demand that depends on the fact that one can afford more after a drop in the price, and vice versa.
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Income effect
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The effect on demand that depends on the change in relative prices.
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Substitution effect
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The study of how society manages its scarce resources.
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Economics
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Latin term used to describe a human being assumed to maximize his or her own utility.
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Homo Economicus
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Labor, capital and raw materials. The things we can use to produce goods and services.
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Resources
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The (hidden) cost of choosing one alternative instead of another; alternative cost.
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Opportunity cost
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The economic behavior and decision-making by individuals and small businesses
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Microeconomics
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An entity capable of making a decision; e.g., a human being or a firm.
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Agent
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The study of the economy as a whole.
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Macroeconomics
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Meeting place where buyers and sellers are able to trade with each other.
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Market
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A simplified description of reality.
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Model
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A testable economic model.
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Positive economics
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An economic model that includes values (and therefore is not testable).
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Normative economics
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Shows how much the buyers are willing to buy at different prices of a good.
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Demand curve
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Latin term meaning "all other things being equal."
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Ceteris paribus
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Goods that are typically consumed together.
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Complementary goods
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Goods that can be used instead of each other.
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Substitute goods
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What individuals choose based on their tastes.
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Preferences
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Shows how much the sellers are prepared to sell at different prices of a good.
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Supply curve
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The prices of the factors of production.
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Factor prices
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A situation in which no agent wants to change his or her decision and all decisions are compatible.
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Equilibrium
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The price that arises when there is an equilibrium in the market.
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Equilibrium price
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The quantity that is bought and sold when there is an equilibrium in the market.
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Equilibrium quantity
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Laws that influence prices and/or quantities in a market.
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Regulations
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An unintended side effect of, for instance, a law.
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Secondary effect
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The lowest price a regulation allows; minimum price.
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Price floor
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The highest price a regulation allows; maximum price.
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Price ceiling
