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Economics Flashcards

1
Q

Factors for Positive Demand Curve Shift

A

Price of substitute goods
Expectations of price increases
Consumer income and wealth
Size of the market

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2
Q

Factors for Negative Demand Curve Shift

A

The price of complementary goods
Consumer income and wealth
Group boycott

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3
Q

Price Elasticity

A

Percentage change in quantity demanded/ percentage change in price

> 1 = elastic
<1 = inelastic
=1 =unitary

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4
Q

Elastic

A

Total revenue will decline if the price is increased

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5
Q

Unitary

A

total revenue will remain the same if the price is increased

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6
Q

Inelastic

A

Total revenue will increase if the price is increased, since the percentage increase in price exceeds the decrease in demand

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7
Q

Income elasticity

A

Percentage change in quantity demanded/ percentage change in income

\+ = normal good
- = inferior
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8
Q

Cross elasticity

A

Percentage change in demand for product x / percentage change in price of product y

\+= substitute
-= complements
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9
Q

Marginal Propensity ot consume (MPC)

A

The percentage of the next dollar in personal disposable income that the consumer would be expected to spend

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10
Q

Marginal Propensity to save (MPS)

A

The percentage of the next dollar in personal disposable income that the computer would be expected to save

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11
Q

Factors Causing A Direct Relationship on the supply curve

A

number of producers
government subsidies
price expectations

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12
Q

Factors with an inverse relationship on the supply curve

A

Changes in production costs

Prices of other goods

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13
Q

Marginal cost

A

The increase in cost that will result from an increase in one unit of production. Only variable costs are relevant, since fixed costs won’t increase such circumstances

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14
Q

In the long run, all costs are…..

A

variable, since increasing production beyond certain levels will require increasing in capacity, caused even “fixed “ costs to rise

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15
Q

Return to scale

A

the increase in units produced (output) that results from an increase in production costs (input)

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16
Q

Return to scale formula

A

percentage increase in output/ percentage increase in input

>1 = economies of scale
<1 = diseconomies of scale
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17
Q

Economies of scale

A

increased efficiency that results from producing more units of a product

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18
Q

Diseconomies of scale

A

increased inefficiencies that result from expanding production

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19
Q

Gross Domestic Product (GDP)

A

the price of all goods and services produced by a domestic economy for a year at current market prices

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20
Q

Real GDP

A

adjusted to remove the effect of price inflation in the goods and services

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21
Q

Gross national product (GNP)

A

price of all goods and services produced by labor and property supplied by the nations residents.

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22
Q

Difference between GDP and GNP

A

GNP includes income received by the nations resident from other countries for products that are a part of foreign economies

GNP excludes payments made to the residents of other countries for products that are a part of the domestic economy

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23
Q

Effects of Price Inflation on Interest rates

A

Price inflation causes an increase in interest rates and decreases the willingness of consumers to borrow, causing a negative shift in the demand curve for items whose purchase is typically financed, such as houses and automobiles

24
Q

Effects of Price inflation on wealth

A

Price inflation causes the value of fixed income investments (such as bonds) to decrease, causing individuals to have less wealth and reducing their consumption of normal goods. (The consumption of inferior goods will increase, but these are typically a small part of the overall economy.)

25
Q

Effects of Price inflation on international purchasing

A

Domestic price inflation makes domestic goods and services more expensive relative to foreign goods and services, causing an increased demand for foreign products and a native shift in the demand curve for domestic goods and services

26
Q

The three common measures of price inflation are

A

Consumer price income (CPI)
Producer price index (PPI)
GDP deflator

27
Q

Consumer price index

A

This measure the price of a fixed basket of goods and services that a typical urban consumer might purchase in relation to the price of the same goods and services in a earlier base period.

28
Q

Producer price index

A

The measures a fixed basket of good at the wholesale costs to dealers (such as retail stores) rather than the price to consumers.

29
Q

GDP deflator

A

This utilizes the total production of the economy as measured by GDP and is used to convert GDP to real GDP.

30
Q

Demand Pull Inflation

A

When appreciate spending increases, the demand curve moves to the right, causing the market equilibrium to occur t a higher price levels and quantity

31
Q

Cost push inflation

A

When production costs increase, the supply curve moves to the left, causing the market equilibrium to occur at higher price levels but a lower quantity.

32
Q

Multiplier Effect

A

There will be a positive shift in the demand curve when there is an increase in spending by consumers, businesses, or governments. The size of the shift will be significantly larger than the amount spent, due to the multiplier effect of increased spending increasing the income of suppliers, who in turn will spend more, increasing the income of other suppliers and so on

33
Q

Multiplier Effect Formula

A

Change in spending/ Marginal propensity to save

34
Q

Panic

A

a severe contraction of GDP occurring within a very short time frame (generally lasting less than a year)

35
Q

Recovery

A

The term used to refer to the period of expansion that follows the end of a contraction

36
Q

Frictional Unemployment

A

time period during which people are unemployed as a result of changing jobs or newly entering the workforce.

37
Q

Structural unemployment

A

potential workers whose job skills do not match the needs of the workforce asa result of changing demand for goods and services of technological advances that reduce or eliminate the need for the skills they possess

38
Q

Cyclical work

A

represents the unemployment caused by variations in the business cycle, when real gap fails to grow at the pace necessary to employ all willing workers

39
Q

Nominal interest rate

A

rate measured in terms of nations currency

40
Q

Real interest rate

A

rate adjusted for inflation

41
Q

Risk free rate

A

rate that would be charged to a borrower if the lender had an absolute certainty of being repaid

42
Q

Discount rate

A

rate set by the Federal Reserve at which a bank can borrow from a Federal Reserve bank

43
Q

Prime rate

A

The rate that bank charge their most creditworthy customers on short term loans from banks

44
Q

Fiscal policy

A

collects taxes and spends, the government may try to aid certain industries or the economy as a whole

45
Q

Fiscal expansion or deficit spending

A

involves raising spending levels without an equivalent increase taxes or lowering taxes without an equivalent decrease in spending

46
Q

Monetary policy

A

The Federal Reserve System is charged with control over the money supply. By taking actions that increase or decrease the total amount of money in circulation, the Fed has a major impact on total spending.

47
Q

Absolute advantage

A

this exists when the country can produce the goods at a lower cost than the other country

48
Q

Comparative advantage

A

this exists when the cost of producing those goods relative to the cost of producing other goods is lower in that country than in the other country

49
Q

Tariff

A

tax on imported goods

50
Q

World Trade Organization (WTO)

A

formed to encourage all countries to maintain free trade policies and to prevent trade wars.

51
Q

North American Free Trade Agreement (NAFTA)

A

signed by the US, Mexico and Canada in order to remove trade restrictions existing between those countries

52
Q

Balance of Payments

A

accounts summary of the transactions of a nation with others

53
Q

Spot rate

A

exchange rate for currencies that will be immediately delivered

54
Q

Forward rate

A

rate at which two parties agree they will exchange the currencies at a specific future fdate

55
Q

Factors affecting foreign exchange rates

A

Inflation-the currency with higher inflation will fall in value relative to the other
Interest rates-the currency in the nation with higher interest rates will rise in value
Balance of payments- currency of the country that is a net exporter will rise in value
Government intervention-currency will rise if official reserves are used to buy it
Political and economic stability-the currency will fall when there are threats to stability

56
Q

Strategic planning

A

identifying an organizations long term goals and determining the best approaches to achieving these goals

Business (6 decks)

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