Chapters 1-5 review Flashcards
improvement in technology will?
Increase supply, reduce production costs
Opportunity Cost
change of output of one good changes, change of another output changes
price of a good decreases from $12 to $10
substitution effect more people want to buy the good
Relative price of good
ratio of its money price of the next best alternative price
Comparative Advantage
who can produce product at a lower cost ( whos faster)
quantity demanded
the amount of a good consumers plan to purchase of a particular price
Law of demand states what
Other things remain the same, higher price of good= smaller quantity demanded
if X shifts leftward
price increase, increase cost of machinery
GDP
Gross domestic Product ( all produced through the year)
Nominal GDP
Measures GDP using current prices
Real GDP
Measures GDP valued using prices prevailing during base year
Potential GDP
Measures non inflationary maximum sustainable level of production
Demand increases , Supply no change
Price and quantity increases
Demand decrease , Supply no change
price and quantity decrease
Decrease supply? no change demand
price increase, quantity decrease
Increase Demand and Supply
Price change intermediate, Quantity increase
Decrease Demand and Supply
Price intermediate, Quantity decrease
Relative Price of a good
ratio of its money price of the next best alternative good
Microeconomics
study of choices of individuals and businesses make, interact with markets, influence government.
Income effect
price of good increases, everything else constant, reduced amount we purchase.
Auto workers negotiate wage increase , how does this effect the supply of cars
decreases supply of cars
Law of supply and demand
price of any good adjusts to bring the quantity supplied and quantity demanded.
Any price above Equilibrium
there is a surplus and price falls
Final goods and services
value of the most all imputs used to produce those goods
Market value
defined using market prices , enables adding value of diverse set of outputs
increase of price of related good will?
decrease supply of another good , produce more quantity
Negative state of nature
decrease supply , increase production costs
positive state of nature
increase supply, decrease production costs
Law of demand
price increase , quantity demand decrease
Absolute Advantage
produce more then other producers. ( doesnt consider opportunity cost
Supply increase, no change in demand
price decreases, quantity increases
Increase Demand, Decrease Supply
Price increase, Quantity change intermediate
Decrease Demand, Increase Supply
Price falls, Quantity change intermediate
Macro economics
study of national and global economics
Positive economics
testable, confronted with data
Globalization
increasing flows of capital, goods, and services internationally
Trade off choices
choice of purchases of something reduces about to do or purchase
Marginal cost
the cost of producing one or more unit of a good measured in units of the other good
Marginal Benefit
measured by the amount some one is willing to pay
Diminishing Marginal benefit
Consumption increases, marginal benefit decreases
Substitution effect
price of a good increases, everything else constant, opportunity cost increases , leads consumers to substitute goods
Quantity Demand
amount of good consumers plan to purchase a specific price during a given time period
Complements
if one is used in conjunction of another
Substitutes
One good is substituted or used in place of another.
capital
anything that improves labor productivity , capital earn interest
when a price of a good falls the substitution effect leads to_______ in quantity purchased and the income effect leads to__________ in the quantity purchased
Increase, decrease
Law of Supply
other things equal the quantity supplied of a good rises when price of good rises
Any price below Equilibrium
shortage = price rises
Lost incomes
those unemployed have reduced incomes
Lost human capital
longer person is unemployed, more difficult it is to compete for new position
People in Labor force
population umployed-emplyed
Employment to population ratio
Employment to population ratio
Labor force participation rate
labor force/working age population x 100
Marginally attracted workers
people who are not working but want to
Frictional unemployment
normal market turnover, some industries either contract or expand, workers look for a better position.
Structural unemployment
changes in tech and foreign competition that change skills needed or location of jobs
Cyclical Unemployment
result from expansions and contractions through business cycle, increases during recessions, decreases during expansions
natural rate of unemployment
the normal rate of unemployment, consisting of frictional unemployment and structural unemployment
calculate output GAP
Actual GDP-Potential GDP
If the unemployment rate is higher than the natural rate then
the output will be below potential GDP
if unemployment rate is below natural rate then
output will exceed potential GDP
Price Level
Average level of prices
Inflation
persistent increase in price level
Deflation
persistent decrease in price level
Redistributes Income
between employees and employers
If inflation is higher then expected then
employers are generally better, employees are worse
Redistribute wealth
between borrowers and lenders
if inflation is higher then expected loans will be what
repaid
CPI
Consumer Price Index - measures the average prices paid by urban consumers
Inflation Calculation
CPI current year - CPI present year X 100
when price level is rising quickly
inflations rising
when price level is rising slow
Inflations lost
When price level is falling
deflation biases CPI
Why does quality change
Increase in price
What is difficult about tracking new goods
tracking prices
Chained CPI
uses current or prior period quantities of goods and services to account for substitution effect and new goods.
Personal consumption expenditure
relys on broader market basket consumed
GDP deflator
on relies on final goods and services produced in the economy
Headline Inflation
Core Inflation
calculated without food or fuel prices
Outlet Substitution Bias
As the structure of retailing changes, people switch to buying from cheaper sources, but the CPI, as measured, does not take account of this outlet substitution
