chapter 1 from class PP: preliminaries

Question 1

economics

Answer 1

the study how a society manages its scarce resources

Question 2

Macroeconomics

Answer 2

Branch of economics that deals with aggregate economic variables

level and growth rate of national output

interest rates

unemployment

inflation

Question 3

microeconomics

Answer 3

Branch of economics that deals with the behavior of individual economic unit

consumers, firms, workers, and investors

the markets that these units comprise

Question 4

explain the societies scare resources?

Answer 4

unlimited wants but limited ressources

Question 5

whats trade off

Answer 5

basically housing your time and what to do with it

choosing one thing before another

Question 6

who face tradeoffs

Answer 6

everyone

Consumers, workers, sellers, etc

Question 7

market economy

Answer 7

all resources are owned by people

Question 8

how is a market economy good for progress?

Answer 8

The business owners have a lot of decisions to do that are well suited to improve their profits, to ensure customer satisfaction, etc

Regular worker will work harder In hopes of getting that promotion or raise

Question 9

planned economy

Answer 9

all resources are owned by the government

Question 10

why is a planned economy bad for progress?

Answer 10

Managers do not really care whether product is sold, all they care is about a certain production of goods

Regular workers wouldn’t want to work to hard, he will still be paid same amount

Question 11

who sets prices in a market economy? how?

Answer 11

Consumers and producers negotiate which sets the price

Question 12

who sets prices in a planned economy? what does this do?

Answer 12

Prices and quantity are set by the government

There will be a lot over expensive crappy products

Creates black markets and corruption

Question 13

why are markets usually efficient?

Answer 13

encourage specialization

optimally allocate resources and goods using a price mechanism

Producers and consumers

Question 14

what is the goal of economic theories?

Answer 14

developed from a set of assumptions

explained observed phenomena

predict future phenomenons

Question 15

what is an economic model?

Answer 15

mathematical representation, based on economic theory, of a firm, a market, or some other entity

Simplified version of reality

Question 16

what let us measure the accuracy of our predictions?

Answer 16

Statistics and econometrics

Question 17

normative analysis

Answer 17

subjective and value judgement

ex:

I should be earning as much as Jane

We must pull our economy out of recession

Question 18

positive analysis

Answer 18

objective statement based on facts

ex:

Jane earns more than me.

The economy is booming now

Question 19

what is a market?

Answer 19

a group of buyers and sellers that, through their actual or potential interactions, determines the price of a particular product

people choose to be there

Question 20

is the labor market a market?

Answer 20

yeee

Question 21

are taxes a market? why?

Answer 21

naaaah

people don’t choose to pay taxes

Question 22

narrow market

Answer 22

a market with like way more direct competitors selling very similar products

ex: market for blue jeans

Question 23

wide market

Answer 23

competitors that could sell products similar or that could replace yours

ex: market for pants

Question 24

arbitrage

Answer 24

practice of buying at a low price at one location and selling at a higher price in another

A way of making quick and almost riskless profit

Question 25

what are the downsides of arbitrage?

Answer 25

market is not competitive

Question 26

perfectly competitive market

Answer 26

There are many buyers and many sellers;

products are identical or very similar;

Each buyer/seller is a “price taker” (no one can affect the market price).

They are too small or insignificant to affect the market

Question 27

can markets with many producers not be competitive? how?

Answer 27

yeeee

individual firms can jointly affect the price

Question 28

can can markets with a small amount of producers be competitive? how?

Answer 28

yeeee

for purpose of analysis

Question 29

whats the extent of a market?

Answer 29

boundaries of a market, both geographical and in terms of range of products produced and sold within it

Question 30

why must the extent of a market important to consider?

Answer 30

For some goods, it makes sense to talk about a market only in terms of very restrictive geographic boundaries

We must also think carefully about the range of products to include in a market

Question 31

why is market definition important?

Answer 31

A company must understand who its actual and potential competitors are for the various products that it sells or might sell in the future

Market definition can be important for public policy decisions

Is Uber in a taxi market?

Is Netflix in a cable TV market?

What market is Samsung in?

Question 32

nominal price

Answer 32

absolute price of a good, unadjusted for inflation

Question 33

real price

Answer 33

price of a good relative to an aggregate measure of prices

price adjusted for inflation

Question 34

Consumer Price Index (CPI)

Answer 34

measure of the aggregate price level

“average” of consumer prices

Question 35

Producer Price Index (PPI)

Answer 35

measure of the aggregate price level for intermediate products and wholesale goods

Question 36

how can you compare prices in different years?

Answer 36

1. Convert New price to Old dollars
2. Convert old price to new dollars
3. You can simply compare the rate of change of the price in their original year’s $

Question 37

1. Converting New price to Old dollars

Answer 37

Old Real Price = Old CPI / New CPI) X New nominal Price

Question 38

2. Converting old price to new dollars

Answer 38

Real new price = (new CPI / old CPI) X Old Nominal price

Question 39

3. comparing the rate of change of the price in their original year’s $

Answer 39

rate of change in price =

(New Nominal Price - Old Nominal price) / (Old Nominal price) X 100

rate of change in CPI (inflation) = (New CPI - Old CPI) / Old CPI X 100