Econ Final Flashcards
What is the study of economics concerned with?
How society manages scarcity of resources
independent decisions, decisions of firms, societal concerns
Opportunity cost
whatever is given up to obtain something (time, money)
marginal change
small, incremental adjustment
tradeoff
when you spend (time, money) doing one thing, there is less (time, money) for something else
market
group of buyers and sellers
Production Possibilities Frontier
How much of a good or service can be produced in a certain amount of time
Point above production possibilities frontier
that amount of a good or service is impossible to produce in that amount of time
point below production possibilities frontier
could be producing more of that good or service at that time
does a change in price shift supply or demand?
neither, point will move along curve
demand shifters:
- expectations of consumers
- number of consumers
- tastes
- price of related goods
- consumer income
supply shifters-
- weather
- government policies
- number of sellers
- expectations of sellers
- input price
- technology
Quantity demanded
the amount of a good buyers are willing to and able to purchase
(moves along curve)
law of demand
quantity demanded of a good falls when the price of the good rises
quantity supplied
amount of a good that sellers are willing to and able to sell
(moves along curve)
law of supply
quantity supplied of a good rises when the price of a good rises
expectation of consumers
demand shifters
number of consumers
demand shifter
tastes
demand shifter
price of related goods (complementary and substitute)
demand shifters
consumer income
demand shifter
weather
supply shifter
government policies
supply shifter
number of sellers
supply shifter
technology
supply shifter
input price
supply shifter
expectations of sellers
supply shifter
price floor
lowest a price can be
price ceiling
highest a price can be
normal good
a good you would normally buy with a normal income (steak)
inferior good
a good you would buy because the better quality item couldn’t be bought with that income (ramen)
complementary good
a good often bought alongside another (hotdogs and bun)
substitute good
a good bought instead of another good (hotdogs instead of hamburgers)
normal rate of unemployment
inevitable unemployment that will always be there
cyclical unemployment
“sick” economy
happens during recession or depression
when unemployment rate increases from normal rate
structural unemployment
long term unemployment when there are fewer jobs than people
frictional unemployment
short term unemployment that happens when people are looking for a job that suits their skills
discouraged workers
workers that have stopped looking for work but are still without jobs
who sends survey to calculate unemployment rate
bureau of labor statistics
labor force
employed+unemployed
employed
full time or part time workers, unpaid workers in a family business, self employed
unemployed
- 16+
- able to work
- have looked for work in past 4 weeks
unemployment rate formula
unemployed/labor force
cpi (consumer price index)
what and quantity of what consumers buy
base year cpi
100
cpi formula
100xbasket price this year/basket price base year
inflation rate formula
100%xcpi current year-cpi last year/cpi last year
who calculates cpi
bureau of labor statistics
real interest rate
adjusted for inflation
nominal interest rate-inflation rate
nominal interest rate
not adjusted for inflation
Demand pull inflation
when the aggregate demand exceeds aggregate supply
cost push inflation
when overrall prices increases due to an increase in cost of wages or materials
Aggregate demand
GDP, demand for all finished goods and services produced in the economy
elasticity
how responsive the consumer is to a change in price
inelastic
not responsive to a change in price
is cereal elastic or inelastic
inelastic
are rice krispies elastic or inelastic
elastic
price elasticity of demand
percentage change in quantity/percentage change in price
liquidity
how easily something can be used as a medium of exchange
rank from most to least liquid
- painting
- money in bank account
- cash
- cash
- money in bank account
- painting
functions of money
- medium of exchange
- standard of value (unit of account)
- store of value
medium of exchange
an item buyers give sellers to purchase a good or service
unit of account (standard of value)
yardstick people use to post prices and record debts
store of value
item people use to transfer purchasing power from present to future
Cost of Living Adjustment (COLA)
an agreement based on the cpi negotiated with boss that increases your salary each year according to inflation rate
Classical economics
market economics worked except for temporary upheavals
laissez faire
Keynesian theory
supported government involvement and spending
keynesian multiplier
used to predict changes in gdp based on changes in spending and taxes
one person’s spending becomes another’s income
Marginal propensity to save
change in saving/change in disposable income
marginal propensity to consume
change in spending/change in disposable income
spending multiplier
1/mps
tax multiplier
-mpc/mps
fiscal policy
taxes and spending applied by congress with long inside lag, short outside lag
monetary policy
federal reserve manipulation manipulation of the money supply with a short inside lag and long outside lag
monetary policy actions
- buy bond
- manipulate reserve requirement
- change interest rate
fiscal policy actions
- reduce/increase tax rates
- increase/decrease gov spending
indexation
dollar amount is indexed for inflation if automatically corrected for inflation by contract/law
