Principles of MacroEconomics chp 1-10 – Flashcards
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Economy
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How society manages it's scarce resources - or all it's resources
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Scarcity
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The limited nature of society's resources
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Efficiency
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The property of society getting the most it can from its scarce resources
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Equality
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The property of distributing economic prosperity uniformly among the members of society
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Opportunity cost
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Whatever must be given up to obtain some item
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Rational people
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People who systematically and purposefully do the best they can to achieve their objectives
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Marginal change
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A small incremental adjustment to a plan of action
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Incentive
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Something that induces a person to act
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Market economy
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An Economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services
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Property rights
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The ability of an individual to own and exercise control over scarce resources
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Market failure
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A situation in which a market left on its own fails to allocate resources efficiently
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Externality
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The impact of one person's actions on the well-being of a bystander
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Market power
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The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
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Productivity
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The quantity of goods and services produced from each unit of labor input
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Inflation
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An increase in the overall level of prices in the economy
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Business cycle
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"Fluctuations in economic activity, such as employment and production"
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Circular flow diagram
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A visual model of the economy that shows how dollars flow through markets among households and firms.
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Production possibilities frontier
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A graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology
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Microeconomics
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The study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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"The study of economywide phenomena, including inflation, unemployment, and economic growth"
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Positive statements
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Claims that attempt to describe the world as it is
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Normative statements
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Describes the economic world as it should be
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Absolute Advantage
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The ability to produce a good using fewer inputs than another producer
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Opportunity cost
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Whatever must be given up to obtain some item
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Comparative advantage
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The ability to produce a good at a lower opportunity cost than another producer
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Imports
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Goods produced abroad and sold domestically
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Exports
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Goods produced domestically and sold abroad
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Market
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A group of buyers and sellers of a particular good or service
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Competitive market
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A market in which there are many buyers and many sellers so that each has a negligible impact on the market price
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Quantity demanded
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The amount of a good that buyers are willing and able to purchase
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Law of demand
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"The claim that, other things equal, the quantity demanded of a good falls when the price of the good rises"
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Demand schedule
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The table that shows the relationship between the price of a good and the quantity demanded
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Demand curve
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A graph of the relationship between the price of a good and the quantity demanded
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Normal goods
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"A good for which, other things equal, an increase in income leads to an increase in demand"
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Inferior goods
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"A good for which, other things equal, an increase in income leads to a decrease in demand"
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Substitutes
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Two goods for which an increase in the price of one leads to an increase in the demand for the other
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Complements
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Two goods for which an increase in the price of one leads to a decrease in the demand for the other
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Quantity supplied
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The amount of a good that sellers are willing and able to sell
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Law of supply
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"The claim that, other things equal, the quantity supplied of a good rises when the price of the good rises"
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Supply schedule
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A table that shows the relationship between the price of a good and the quantity supplied
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Supply curve
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A graph of the relationship between the price of a good and the quantity supplied
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Equilibrium
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A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
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Equilibrium price
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The price that balances quantity supplied and quantity demanded
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Equilibrium quantity
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The quantity supplied and the quantity demanded at the equilibrium price
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Surplus
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A situation in which quantity supplied is greater than quantity demanded
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Shortage
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A situation in which quantity demanded is greater than quantity supplied
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Law of supply and demand
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The claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
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Elasticity
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A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
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Price elasticity of demand
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"A measure of how much the quantiy demanded of a good responds to change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price"
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Total revenue
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The amount paid by buyers and received by sellers of a good computed as the price of the good times the quantity sold
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Income elasticity of demand
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"A measure of how much the quantity demanded of a good responds to change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income"
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Cross price elasticity of demand
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A measure of how much the quantity demanded of one good responds to change in the price of another good. Computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good
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Price elasticity of supply
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"A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as a percentage change in quantity supplied divided by the percentage change in the price"
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Price ceiling
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A legal maximum on the price at which a good can be sold.
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Price floor
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A legal minimum on the price at which good can be sold
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Tax incidence
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The manner in which the burden of a tax is shared among participants
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Welfare economics
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The study of how the allocation of resources affects economic well-being
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Willingness to pay
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The maximum amount that a buyer will pay for a good
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Consumer surplus
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The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
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Cost
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The value of everything a seller must give up to produce a good
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Producer surplus
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The amount a seller is paid for a good minus the sellers cost of providing it
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Efficiency
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The property of a resource allocation or maximizing the total surplus received by all members of society
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Equality
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The property of distributing economic prosperity uniformly among the members of socienty
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Deadwieght loss
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"The fall in total surplus that results from a market distortion, such as a tax"
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World Price
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The price of a good that prevails in the world market for that good
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tariff
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A tax on goods produced abroad and sold domestically
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Microeconomics
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The study of how households and firms make decisions and how they interact in markets
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Macroeconomics
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"The study of economy-wide phenomena, including inflation, unemployment, and economic growth"
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Gross domestic product
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The market value of all final goods and services produced within a country in a given period of time
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Consumption
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"Spending by households on goods and services, with the exception of purchases of new housing"
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Investment
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"Spending on capital equipment, inventories, and structures, including household purchases of new housing"
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Government purchases
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"Spending on goods and services by local, state , and federal governments"
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Net exports
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Spending on domestically produces goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
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Nominal GDP
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The production of goods and services values at current prices
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Real GDP
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The production of goods and services valued at constant prices
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GDP deflator
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A measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
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domestic trade ratio
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The opportunity cost in your own country
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Competitive market
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- price takers: buyers & sellers in multitudes such that each has negligible impact on prices. - homogenous product ( generic) - ease of exit and entry - Perfect knowledge
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Elasticity
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-[(Q2-Q1)/[(Q2+Q1)/2]/(P2-P1)/[(P2+P1)/2]]
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Binding
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Price cannot reach equilibrium for a product. Can be price ceiling or price floor.
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Non-parametric value
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Value that is not represented on the axis of the graph. Taxes, taste.
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Loss of sales
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dead weight loss
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Competitive market
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- Price takers - large enough volume of participants that any single person has a negligible impact on price - Homogenous product (generic) - Ease of Exit and Entry - Perfect knowledge (no one has an advantage over another)
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Market power
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Ability or maintain prices in the face of falling demand.
