Economic Concepts Flashcards
List the direct relationship factors to shift demand curve upwards other than price
- Price of substitute goods (Inc in P of hamburgers will inc demand for hot dogs)
- Expectations of price change (tax in the future, buy more now)
- Income for normal goods (as wealth inc, demand inc)
- Extent of the market (more babies=more baby food demand)
List the inverse relationship factors that shift demand curve downward
- Price of a complement good (Inc in P of chips will cause less demand for salsa)
- Income for inferior goods (when wealth inc, demand for used cars decreases)
- Consumer boycott
- Consumer tastes change
- Contraction (less spending decreases equilibrium GDP)
What do elasticities measure? Name the different types.
The sensitivity of something (QD) to changes in something else (P). Price elasticity of demand Price elasticity of supply Income elasticity of demand Cross elasticity of demand
If ED > 1
If ED < 1
If ED = 1
Elastic, as P inc total revenue dec
Inelastic, as P inc total revenue inc
Unitary elastic, as P inc no change to revenue
Elasticity of Demand =
ED= % ^ in QD / % ^ in P
What is the Arc method calculation for ED
ED= (^ in QD/Avg QD)/(^ in P/Avg P)
* All elasticities can use the arc method
Full unemployment implies..
Frictional and structural (no cyclical)
The Phillips Curve implies that…
In the short term policies that result in higher inflation may also reduce unemployment
Explain effects when supply shifts to the right
Sellers will now supply more quantity at the same or lower price (At $20, now supply 70 instead of 50 units; for a quantity of 50, now charge lower price of $10 instead of $20)
A state law increasing the minimum wages that employers must pay may cause…
The supply curve for unskilled workers to shift inward (price floor cause QS to exceed QD)
Stagflation
Combo of stagnation (high unemployment) and inflation
Opportunity Cost
The forgone value of the next best use of an asset (Developing land prevents from selling, resulting in forfeit of benefit of proceeds which would be the opportunity cost)
International Dumping
Selling below cost in an effort to reduce competition
Structural Unemployment
Lose job as a result of change in demand for goods/services
Frictional Unemployment
Results from new workers entering the work force, displacing existing workers and normal turnover
Different types of foreign exchange currency risk
- Translation - accounting risk
- Finance operations in the local currency
- Transaction risk - match as many revenues to costs as possible in each market.
- Hedging
What happens in a price ceiling set below equilibrium?
QD will exceed QS resulting in a shortage of goods
What happens in a price floor set above equilibrium?
QS will exceed QD resulting in unpurchased surpluses of goods
NAIRU unemployment
“Non-accelerating inflation rate of unemployment”
The sum of frictional and structural
Earned/spent 40,000 in 2002 when CPI was 180; same worker earned/spent 50,000 in 2012 when CPI was 230. How much did real income fall by?
Income in 2002 purchased equivalent of (40,000 x 230/180= 51,111) in 2012. Real income fell by 2.2% (51,111-50,000 / 50,000)
An item is inelastic if…
The increase in demand is proportionately lower than a decrease in price
High elasticity would be indicated by…
An increase in demand that is proportionately higher than a decrease in price
Income Elasticity of Demand
= % ^ in QD / % ^ in Income
* Positive = normal good
Negative= inferior good (change of 2.0 mercedes, change of .5 spam)
Cross Elasticity of Demand
= % ^ in QD for product X
/ % ^ in Price of product Y
* Measures change in QD of a good to a change in the price of another good, determines substitutes if +, complements if -.