Chapters 4-7 Flashcards
Perfectly Competitive Market Assumptions
no buyer or seller is big enough to influence that market price; every buyer pays and every seller charges the same price
Price Ceilings
max price a seller can charge for product or service
Shifts in demand
tastes and preferences
income and wealth
availability and prices of related goods
number and scale of buyers
buyers’ expectations about the future
movement along the demand curve
change in product’s own price
shifts in supply
input prices
technology
number and scale of sellers
sellers’ expectations about the future
equilibrium
quantity demanded = quantity supplied
nobody would benefit personally by changing his or her own behavior
consumption
use of goods and services by a household
savings
portion of income that is not spent on current expenses and is instead set aside for future use
double counting
error of counting the same item more than once when calculating economic indicators, such as GDP or GNP
surplus
excess supply, suppliers provide more than consumers want at a given price
market price is above equilibrium
shortage
excess demand, consumers want more than suppliers provide at given price
market price is below equilibrium
markets
group of economic agents who are trading a good or service plus the rules and arrangements for trading
price floors
minimum price government or agency sets for product or service
high capital stock
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
complementary goods
goods used with another good
ex. PB and jelly
Substitute Goods
used in place of another good
ex. butter and margarine
Closed economy
does not trade with the rest of the world
open economy
trades freely with the rest of the world
Real GDP
total value of production using market prices from a specific base year to determine value of each unit that is produced
growth rates
change in quantity between two dates relative to baseline
market equilibrium
supply = demand
aggregate production function
Y = A x F (K, H)
Y - GDP
A - index of technology
K - physical capital stock
H - total efficiency units of labor
Macroeconomic concepts
national income, GDP, inflation, unemployment, savings and investments
factors affecting production function
human capital, physical capital, technology, natural resources, infrastructure
shifts in production function
technology shifts production function upwards
capital stock and labor
circular flow of income
firms produce goods and services
households spend expenditure on goods and services
households provide factors of production
firms pay income to factors of production
law of demand
quantity demanded increases when price decreases
quantity demanded decreases when price increases
law of supply
quantity supplied increases when price increases
quantity supplied decreases when price decreases
economic growth
increase in GDP per capita of an economy
national accounts
measure level of aggregate economic activity in a country
law of diminishing marginal benefit
additional satisfaction gained from consuming each additional unit of production increases at a decreasing rate
sustained growth
positive and steady growth
catch up growth
catch up to rich countries by adopting their production and technologies
public goods
nonexcludable and nonrival goods
meaning everyone can benefit from it and utilizing them does not take away from total quantity
inferior goods
you buy less of the good as your income increases
normal goods
you buy more of these as your income increases
calculation of GDP
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
ceteris paribus
all other things being equal or constant
demand schedule
table that reports quantity demanded at different prices holding al else equal
supply schedule
table reports quantity supplied at different prices
