2013 Midterm Flashcards
What is Scarcity?
Lack of enough resources to satisfy all desired uses of those resources
What is Capital?
Final goods produced for use in the production of other goods, such as equipment and structures.
What is Entrepreneurship?
The assembling by an entrepreneur of resources to produce new or improved
products and technologies.
Economics is?
the study of the choices made as we attempt to deal with scarcity?
What is Opportunity Costs?
the most desired resource(s) forgone to get something else is called?
What are Production possibilities?
the alternative goods and services that could be produces in a given period with available resources is called?
Efficiency means?
squeezing maximum output out of available resources?
Economic Growth is?
increase in output (real GDP); an expansion of production possibilities?
What is market mechanism?
aka the invisible hand, adjusts based on sales & prices=Price signal
what is laissez faire?
the doctrine of “leave it alone”, nonintervention by government in the market mechanism?
What is a Mixed Economy?
An economy that uses both market signals and government directives to allocate goods and resources.
Market failure means?
when the invisible hand has failed to achieve the best possible outcomes?
Government failure means?
when the government intervention fails to improve market outcomes or makes them worse?
What is Macroeconomics?
the study of aggregate economic behavior of the economy as a whole
The ‘big picture’, things such as full employment, control of inflation, and economic growth
Doesn’t worry about the well-being or behavior of specific individuals or groups
What is Microeconomics?
the study of individual behavior in the economy
concerned w/ the details from individuals, firms, and government agencies that compose the economy
What is Ceteris Paribus?
assumption of “other things remaining equal” is called?
What are the 3 Core Choices every nations confronts?
WHAT to produce with our limited resources,
HOW to produce the goods and services,
FOR WHOM goods and services are produced
What are the Four Basic Factors of Production?
Land, Labor, Capital, Entrepreneurship are?
What are the two essential principles illustrated by the Production Possibilities Curve?
the production possibilities curve illustrates two essential principles: Scarce resources and Opportunity Costs.
What is the Law of Increasing Opportunity Costs?
This law says that we must give up ever-increasing quantities of other goods
and services in order to get more of a particular good.
What is Per Capita GDP?
The dollar value of GDP divided by total
population; average GDP.
What is the definition of Factors of Production?
The resources(inputs) used to produce goods and services(outputs) are called?
What is Human Capital?
The knowledge and skills possessed
by the workforce.
What does Capital-intensive mean?
Production processes that use a high ratio
of capital to labor inputs.
What is Productivity?
Output per unit of input —for example,
output per labor-hour.
What is Outsourcing?
The relocation of production to foreign
countries.
What are Externalities?
Costs (or benefits) of a market activity
borne by a third party.
What is a Monopoly?
A firm that produces the entire market
supply of a particular good or service.
What is Income quintile?
One-fifth of the population, rank-ordered by income (e.g., top fifth).
Per capita GDP is an indicator of
how much output the average person would get if all output were divided evenly among the population.
On average, by what percentage does annual US output grow?
On average, U.S. output has grown by roughly 3 percent a year, nearly three times faster than population growth (1 percent)
In dollar-terms, what is the size of America’s capital stock today?
over $50 trillion worth of machinery,
factories, and buildings
What are the four basic economic roles for government?
- Providing a legal framework.
- Protecting the environment.
- Protecting consumers.
- Protecting labor.
Factor Markets are?
where factors of production(land, labor, capital) are bought and sold?
(If you go to work for example, your employee is purchasing your services.)
Product Markets are?
where finished goods and services are bought and sold?
What does demand mean?
means a willingness AND ability to purchase a specific product at alternative prices
Supply is?
the ability AND willingness to sell(produce) specific quantities of a good at alternative prices.
A Demand Schedule is?
a table showing the quantities of a good consumers are willing and able to buy at prices
A Demand Curve is?
A downward sloping curve describing the quantities of a good a consumer is willing and able to buy at alternative prices, cp.
The Law of Demand claims…
claims there is an inverse relationship between price and quantity demanded ḈṖ
If Price ↑, then Qo(quantity demanded) ↓
If Price ↓, then Qo ↑
What is a shift in demand?
A change(shift) in the quantity demanded at any (every) given price.
What is Market Demand?
The total quantities of a good or service people are willing and able to buy at alternative prices, cp.
What is Market Supply?
The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, cp.
The Law of Supply states…
states there is a direct relationship between price and quantity supplied(cetpar)Market Supply are…
If P ↑, then Qs ↑
If P ↓, then Qs ↓
What is Equilibrium Price?
P* -When quantity demanded = Quantity supplied
What is Market Surplus?
at a given price, the amount by which Qs exceeds Qd
What is Market Shortage?
at a given price, the amount by which Qd exceeds Qs
Identify the four major groups of market participants and what are their goals?
- consumers -to maximize the utility we from goods and services with available income
- business firms -to maximize profits
- government agencies -to use available resources to serve public needs
- international buyers and sellers -same goals as local buyers and sellers
What are the two constraints that necessitate economic interactions with others?
- Our inability as individuals to produce all the things we need or desire.
- The limited amount of time, energy, and resources we have for producing those things we could make for ourselves.
Determinants of Market Demand include…
- Tastes and preferences
- Income
- Other Goods (Substitute goods and Complimentary goods)
- Expectations of Future (prices/tastes/incom)
- Number of buyers
What are the six determinants of Market Supply?
?correct?
1. Technology
- Factor costs
- Other goods{profitability of Prod.)-if producing other goods provide you more money, there is little incentive
- Government Intervention-a. subsidies b. taxes
- Expectations-of future prices
- Number of sellers - too much competition
What is inflation?
An increase in the average level of prices of goods and services.
What is Deflation?
A decrease in the average level of prices of goods and services.
What is Relative Price?
The price of one good in comparison with
the price of other goods.
What is Nominal Income vs Real income?
Nominal income is the actual amount of money income received in a given time period. Real income is nominal income adjusted for inflation.
Formula:Raise % - Inflation= Real
Ex. 3% raise - 5% inf=3% decrease
What is Money Illusion?
The use of nominal dollars rather than real
dollars to gauge changes in one’s income or wealth.
What is Hyperinflation?
Inflation rate in excess of 200 percent,
lasting at least one year.
What is Bracket Creep?
The movement of taxpayers into higher tax brackets (rates) as nominal incomes grow.
What is Consumer Price Index (CPI)?
A measure (index) of changes in the average price of consumer goods and services.
What is Inflation Rate?
The annual percentage rate of increase in
the average price level.
Formula:(new CPI value - old CPI value/old CPI value) x100
What is Base Year?
The year used for comparative analysis the basis for indexing; price changes.
What is Core Inflation Rate?
Changes in the CPI reports monthly, excludes food and energy prices due to its high month to month volatility.
What is Price Stability?
The absence of significant changes in the
average price level; officially defined as a rate of inflation of less than 3%.
What is Real Interest Rate?
The nominal interest rate minus the
anticipated inflation rate.
Formula:Interest rate % - Inflation= Real
What is Adjustable-rate Mortgage (ARM)?
A mortgage (home loan) that adjusts the nominal interest rate to changing rates of inflation.
How is a change in relative prices an essential ingredient in the “market mechanism”?
This (relative) price rise alerts producers to increase their output, cutting back on other production or leisure activities. A general inflation price change—an increase in the average price level—doesn’t perform this same market function.
What are two basic fundamentals about how inflation affects people’s buying power?
- Not all prices rise at the same rate during an inflation-some prices rise rapidly, others rise only modestly, and some actually fall.
- Not everyone suffers equally from inflation-Those people who consume the goods and services that are rising faster in price bear a greater burden of inflation; their real incomes fall further.
Explain the cause of demand-pull inflation
“too much money chasing too few goods.” causes prices to rise which leads to this type of inflation.
Explain the cause of cost-push inflation.
If for example a natural disaster causes oil to go up all prices go up which leads to this type of inflation.
What is National Income Accounting?
The measurement of aggregate economic activity, particularly national income and its
components.
What is Gross Domestic Product(GDP)?
The total market value of all final goods and services produced within a nation’s borders in a given time period.
What are Intermediate Goods?
Goods or services purchased for use as input in the production of final goods or in services.
Example: rugs for cars being manufactured.
What is Nominal GDP?
The value of final output produced in a given period, measured in the prices of that period (current prices).
What is Real GDP?
The value of final output produced in a given period, adjusted for changing prices.
Formula: Nominal GDP x [GDP Deflator # base year(2009)/GDP Deflator year x #]
What is Depreciation?
The consumption of capital in the production process; the wearing out of plant and equipment.
What is Investment?
Expenditures on (production of) new plants, equipment, and structures (capital), plus changes in business inventories.
What is Gross Investment?
Total investment expenditure in a given time period.
What is Net Investment?
Gross investment minus depreciation.
What are Exports?
Goods and services sold to international buyers.
What are Imports?
Goods and services purchased from international sources.
What are Net Exports?
The value of exports minus the value of
imports.
What is Disposable Income?
After-tax income of households; personal income minus personal taxes.
What is Saving?
That part of disposable income not spent on current consumption; disposable income less consumption.
When (time period) and why (reason) did America’s politicians begin to care about measuring economic outcomes and which economist led?
During the Great Depression of the 1930s which was a lesson in the need for better measures of economic performance. Simon Kuznets.
What is the difference between GDP(Gross domestic Product) and GNP(Gross National Product)?
GDP measures everything built in the US regardless whether it’s American owned. GNP measures everything American owned regardless if it’s build outside.
What is a “non-market activity”? Provide two examples of activities that meet this classification.
GDP excluded goods and services that are produced but not sold for $.
Examples: homemaker who cleans, washes, etc. Friend who helps tutor you for free.
What are the four major uses of output? Aka this is the Expenditure Approach GDP Calculation.
Consumption, Investment, Government Spending, Net Exports.
Formula: GDP=C+I+G+(x-m)
Explain WHY the total value of market incomes must equal the total value of final output.
every dollar spent on goods and services flows into somebody’s hands(businesses, workers, government). Thus the dollar value of output will always equal the dollar value of income.
What is Labor Force?
All persons age 16 and over who are either
working for pay or actively seeking paid employment.
What is Labor Force Participation Rate?
The percentage of the working-age population working or seeking employment.
Formula: (civilian labor force/civilian non institutionalized population) x100
What is Unemployment?
The inability of labor force participants to
find jobs.
What is Okun’s Law?
1 percent more unemployment results in 2 percent less output.
What is Unemployment Rate?
The proportion of the labor force that is unemployed
Formula: (# of unemployed people/civilian labor force) x100
What is a Discouraged Worker?
An individual who isn’t actively seeking employment but would look for or accept a job if one were available.
What is Underemployment?
People seeking full-time paid employment who work only part-time or are employed at
jobs below their capability.
What is Seasonal Unemployment?
Unemployment due to seasonal changes in employment or labor supply.
What is Frictional Unemployment?
Brief periods of unemployment experienced by people moving between jobs or into the labor market.
What is Structural Unemployment?
Unemployment caused by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs.
What is Cyclical Unemployment?
Unemployment attributable to a lack of job vacancies—that is, to an inadequate level of
aggregate demand.
What is Full Employment?
The lowest rate of unemployment compatible with price stability, variously estimated at between 4 percent and 6 percent unemployment.
What is Natural Rate of Unemployment?
The longterm rate of unemployment determined by structural forces in labor and product markets.
How does the labor force participation rate of women TODAY compare to the labor force participation rate of women during the 1950s?
1 out of 3 women participated in the labor force in 1950–1960, whereas 6 out of 10 now do so.
America’s labor force tends to increase from year to year. How much of an increase do we expect to see each year?
Increase of 2 million more per year.
List the two reasons why America’s labor force grows from year to year.
population increases and continuing
immigration.
What is Phantom Unemployed?
Unemployed workers who pretend to be looking for a job but are not.
In order for the economy to avoid Cyclical Unemployment, what must be true about the rate of economic growth?
the economy must grow at least as fast as the labor force to avoid cyclical unemployment.
What macroeconomic goals were established by the Full Employment and Balanced Growth Act of 1978?
National goal of 4% rate of unemployment and 3 percent inflation.
Name the 4 types of unemployment.
Seasonal, Frictional, Structural, Cyclical
What is consumption?
Expenditure by consumers on final goods and services.
What is disposable income?
Aftertax income of consumers; personal income less personal taxes.
