ECON Final Flashcards
Richer countries with a higher GDP have better
healthcare, education, jobs, etc.
What is the function of the price system?
To coordinate economic activity
Productivity is defined as the
amount of goods and services produced from each unit of labor input
What is the most important factor that explains differences in living standards among countries?
Productivity
To have better living standards one needs
living stability and property rates
What is the difference between nominal and real interest rates?
Real does not factor in inflation, nominal does.
Assume a market is perfectly competitive. When a new product enters the market, the price
in the market does not change
Comparative advantage is related most closely to which of the following?
Opportunity cost
Suppose the U.S. has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that
the U.S. should produce more pork than what it requires and export some of it to Mexico
Who wins from trade?
Countries that have a comparative advantage
What causes minimum wage unemployment?
A price floor
A price floor causes…
- Surpluses
- Lost gains from trade (deadweight loss)
- Wasteful increases in quality
- A misallocation of resources
What causes inflation in the long run?
When the money supplied increases at a faster rate than the increase in GDP.
What are the limitations of GDP? (PIES)
Population
Inequality
Environment
Shadow Economy
What causes inflation in the long run?
An increase in real GDP
Goods and services are purchased by
Households, firms, and governments
Name the difference between Equality and Efficiency.
Efficiency: when society gets the most from its scarce resources
Equality: when prosperity is distributed uniformly among society’s members
According to Adam Smith, the success of decentralized market economies is primarily due to
individuals’ pursuit of self-interest.
What causes a shift in demand?
Income, population, tastes, related goods
What are the laws of supply and demand? (draw it out!)
S- As price increases, Quantity Supplied increases
D- As price increases, Demand decreases
The pricing system controls
the equilibrium
Equilibrium is when
Supply and demand are equal
Elasticity allows for a little more
precision of the price of a good.
A good is inelastic if the demand curve is
more vertical than horizontal
What happens to equilibrium when supply and demand shift?
The price will adjust until there is a new equilibrium
If the market functions below a price ceiling, it is
non-binding
If there is a price ceiling imposed on the housing market, rent control means that there will be a
shortages and a decrease in quality
What is deadweight loss?
The loss of all transactions
If there is a tax, the deadweight loss
will be higher.
What is the main cause of inflation?
If more money is printed, then the price of all goods increases.
Inflation is a problem when
it cannot be predicted and planned for.
Inflation is a hidden tax on
savings and raises.
CPI or the Consumer Price Index measures
inflation.
The essence of economics is
trade-offs.
Resources in an economy are
limited for everyone (ex: time, land, manpower)
What is an opportunity cost?
What you give up for what you get
Who pays a tax when it is imposed?
Both the buyers and the sellers pay, but the side that is more inelastic pays the most (less substitute).
What do we mean by the word “economy”?
Goods and services
Production equals
economy
GDP or Gross Domestic Product is
what the economy can produce.
