Chapters 4-7

Question 1

Perfectly Competitive Market Assumptions

Answer 1

no buyer or seller is big enough to influence that market price; every buyer pays and every seller charges the same price

Question 2

Price Ceilings

Answer 2

max price a seller can charge for product or service

Question 3

Shifts in demand

Answer 3

tastes and preferences
income and wealth
availability and prices of related goods
number and scale of buyers
buyers’ expectations about the future

Question 4

movement along the demand curve

Answer 4

change in product’s own price

Question 5

shifts in supply

Answer 5

input prices
technology
number and scale of sellers
sellers’ expectations about the future

Question 6

equilibrium

Answer 6

quantity demanded = quantity supplied

nobody would benefit personally by changing his or her own behavior

Question 7

consumption

Answer 7

use of goods and services by a household

Question 8

savings

Answer 8

portion of income that is not spent on current expenses and is instead set aside for future use

Question 9

double counting

Answer 9

error of counting the same item more than once when calculating economic indicators, such as GDP or GNP

Question 10

surplus

Answer 10

excess supply, suppliers provide more than consumers want at a given price

market price is above equilibrium

Question 11

shortage

Answer 11

excess demand, consumers want more than suppliers provide at given price

market price is below equilibrium

Question 12

markets

Answer 12

group of economic agents who are trading a good or service plus the rules and arrangements for trading

Question 13

price floors

Answer 13

minimum price government or agency sets for product or service

Question 14

high capital stock

Answer 14

large amount of resources that contribute to production of goods and services

its workers can work with more and better equipment and structures, producing more GDP

Question 15

complementary goods

Answer 15

goods used with another good

ex. PB and jelly

Question 16

Substitute Goods

Answer 16

used in place of another good
ex. butter and margarine

Question 17

Closed economy

Answer 17

does not trade with the rest of the world

Question 18

open economy

Answer 18

trades freely with the rest of the world

Question 19

Real GDP

Answer 19

total value of production using market prices from a specific base year to determine value of each unit that is produced

Question 20

growth rates

Answer 20

change in quantity between two dates relative to baseline

Question 21

market equilibrium

Answer 21

supply = demand

Question 22

aggregate production function

Answer 22

Y = A x F (K, H)

Y - GDP
A - index of technology
K - physical capital stock
H - total efficiency units of labor

Question 23

Macroeconomic concepts

Answer 23

national income, GDP, inflation, unemployment, savings and investments

Question 24

factors affecting production function

Answer 24

human capital, physical capital, technology, natural resources, infrastructure

Question 25

shifts in production function

Answer 25

technology shifts production function upwards

capital stock and labor

Question 26

circular flow of income

Answer 26

firms produce goods and services
households spend expenditure on goods and services

households provide factors of production
firms pay income to factors of production

Question 27

law of demand

Answer 27

quantity demanded increases when price decreases

quantity demanded decreases when price increases

Question 28

law of supply

Answer 28

quantity supplied increases when price increases

quantity supplied decreases when price decreases

Question 29

economic growth

Answer 29

increase in GDP per capita of an economy

Question 30

national accounts

Answer 30

measure level of aggregate economic activity in a country

Question 31

law of diminishing marginal benefit

Answer 31

additional satisfaction gained from consuming each additional unit of production increases at a decreasing rate

Question 32

sustained growth

Answer 32

positive and steady growth

Question 33

catch up growth

Answer 33

catch up to rich countries by adopting their production and technologies

Question 34

public goods

Answer 34

nonexcludable and nonrival goods

meaning everyone can benefit from it and utilizing them does not take away from total quantity

Question 35

inferior goods

Answer 35

you buy less of the good as your income increases

Question 36

normal goods

Answer 36

you buy more of these as your income increases

Question 37

calculation of GDP

Answer 37

Y = C + I + G + X - M

C - consumption goods and services bought by domestic households
I - new physical capital investment bought by households and domestic firms
G - government expenditures on goods and services
X - exports of goods and services
M - imports of goods and services

Question 38

ceteris paribus

Answer 38

all other things being equal or constant

Question 39

demand schedule

Answer 39

table that reports quantity demanded at different prices holding al else equal

Question 40

supply schedule

Answer 40

table reports quantity supplied at different prices